Firms’ Choices of Wage-Setting Protocols
Abstract/Contents
- Abstract
- We study a labor market characterized by search frictions, departing from most theoretical and quantitative studies by allowing firms to choose between posting non-negotiable wage offers and bargaining wages with individual workers. We use the model to study the positive and normative implications of heterogeneous wage-setting strategies in labor markets, as well as the potential effect of policies that seek to regulate wage-setting. We analytically derive - and empirically validate - a testable prediction from the model regarding the cross-sectional prevalence of bargaining and renegotiation of wages among workers. We then estimate the model and use it to evaluate counterfactuals in which either wage-setting procedure is mandated. We find that eliminating bargaining reduces the overall gender gap in wages by 6%, the education gap by 3%, and residual wage dispersion by 12%, while leading to welfare losses for workers. Similar numbers are observed when bargaining is mandated, with ensuing welfare gains for workers. Either policy raises output by 1-3% by eliminating inefficient job mobility, but accounting for firm responses in vacancy creation can overturn these effects.
Description
| Type of resource | text |
|---|---|
| Date created | August 31, 2021 |
Creators/Contributors
| Author | Flinn, Christopher |
|---|---|
| Author | Mullins, Joseph |
| Organizer of meeting | Hurst, Erik |
| Organizer of meeting | Kehoe, Patrick |
| Organizer of meeting | Pastorino, Elena |
Subjects
| Subject | economics |
|---|---|
| Genre | Text |
| Genre | Working paper |
| Genre | Grey literature |
Bibliographic information
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- User agrees that, where applicable, content will not be used to identify or to otherwise infringe the privacy or confidentiality rights of individuals. Content distributed via the Stanford Digital Repository may be subject to additional license and use restrictions applied by the depositor.
- License
- This work is licensed under a Creative Commons Attribution 4.0 International license (CC BY).
Preferred citation
- Preferred citation
- Flinn, C. and Mullins, J. (2022). Firms’ Choices of Wage-Setting Protocols. Stanford Digital Repository. Available at https://purl.stanford.edu/fj929fz9999
Collection
SITE Conference 2021
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