Wage Bargaining with On-the-Job Search: Theory and Evidence

Authors

  • Pierre Cahuc,

    1. Université de Paris I, Panthéon–Sorbonne, Paris, France, and CREST–INSEE, Malakoff Cedex, France,
      Paris Jourdan Sciences Economiques, Paris, France, and CREST–INSEE, Malakoff Cedex, France, and University of Bristol, Bristol, U.K.,
      and
      EUREQua, Maison des Sciences Economiques, 106–112 Boulevard de I'Hôpital, 75647 Paris Cedex 13, France, and University College London, London, U.K., and Institute for Fiscal Studies; jmrobin@univ-paris1.fr.
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  • Fabien Postel-Vinay,

    1. Université de Paris I, Panthéon–Sorbonne, Paris, France, and CREST–INSEE, Malakoff Cedex, France,
      Paris Jourdan Sciences Economiques, Paris, France, and CREST–INSEE, Malakoff Cedex, France, and University of Bristol, Bristol, U.K.,
      and
      EUREQua, Maison des Sciences Economiques, 106–112 Boulevard de I'Hôpital, 75647 Paris Cedex 13, France, and University College London, London, U.K., and Institute for Fiscal Studies; jmrobin@univ-paris1.fr.
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  • Jean-Marc Robin

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    • Conversations with Manuel Arellano, Bruno Crépon, Zvi Eckstein, Francis Kramarz, Guy Laroque, Thierry Magnac, Dale Mortensen, Barbara Petrongolo, Chris Pissarides, and Randy Wright were helpful for the preparation of this paper. The authors also wish to thank three anonymous referees, the editor, and participants in the following conferences and workshops: the CEPR DAEUP meeting in Paris (May 2002), the CEPR/IZA ESSLE meeting in Buch an Amersee (Sept. 2002), the ERC conference in Chicago (Oct. 2002), and the Banco de Portugal Conference on Labor Market Reform in Santa Maria Do Bouro (May 2003). The paper also greatly benefitted from many remarks and suggestions from seminar participants at places too numerous to list here. The customary disclaimer applies.


Abstract

Most applications of Nash bargaining over wages ignore between-employer competition for labor services and attribute all of the workers' rent to their bargaining power. In this paper, we write and estimate an equilibrium model with strategic wage bargaining and on-the-job search and use it to take another look at the determinants of wages in France. There are three essential determinants of wages in our model: productivity, competition between employers resulting from on-the-job search, and the workers' bargaining power. We find that between-firm competition matters a lot in the determination of wages, because it is quantitatively more important than wage bargaining à la Nash in raising wages above the workers' “reservation wages,” defined as out-of-work income. In particular, we detect no significant bargaining power for intermediate- and low-skilled workers, and a modestly positive bargaining power for high-skilled workers.

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