Incomplete Wage Posting

Posted: 12 Dec 2006

See all articles by Claudio Michelacci

Claudio Michelacci

Centre for Monetary and Financial Studies (CEMFI); Centre for Economic Policy Research (CEPR)

Javier Suarez

Centre for Monetary and Financial Studies (CEMFI); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Abstract

We consider a directed search model in which workers differ in productivity. Productivity becomes observable to firms after assessing their workers on the job, but it is not verifiable. Firms with vacancies choose between posting a noncontingent wage and leaving wages subject to bargaining with the worker. Under wage bargaining, firms cannot optimize the trade-off between paying higher wages and having a larger probability of filling vacancies. But wage bargaining makes wages increasing in worker productivity and so may allow firms to attract better workers into the vacancy. When workers' heterogeneity is large and bargaining powers come close to satisfying Hosios's rule, firms opt for bargaining. Yet, equilibria with bargaining fail to maximize aggregate net income and sometimes are not constrained Pareto optimal.

Suggested Citation

Michelacci, Claudio and Suarez, Javier, Incomplete Wage Posting. Journal of Political Economy, Vol. 114, pp. 1098-1123, December 2006, Available at SSRN: https://ssrn.com/abstract=951226

Claudio Michelacci

Centre for Monetary and Financial Studies (CEMFI) ( email )

Casado del Alisal 5
28014 Madrid
Spain
+34 91 4290 551 (Phone)
+34 91 4291 056 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Javier Suarez (Contact Author)

Centre for Monetary and Financial Studies (CEMFI) ( email )

Casado del Alisal 5
28014 Madrid
Spain
+34 91 429 0551 (Phone)
+34 91 429 1056 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

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