Arbeitspapier

Strategic Wage Setting and Coordination Frictions with Multiple Applications

We examine wage competition in a model where identical workers choose the number of jobs to apply for and identical firms simultaneously post a wage. The Nash equilibrium of this game exhibits the following properties: (i) an equilibrium where workers apply for just one job exhibits unemployment and absence of wage dispersion; (ii) an equilibrium where workers apply for two or for more (but not for all) jobs always exhibits wage dispersion and, typically, unemployment; (iii) the equilibrium wage distribution with a higher vacancy-to-unemployment ratio first-order stochastically dominates the wage distribution with a lower level of labor market tightness; (iv) the average wage is non-monotonic in the number of applications; (v) the equilibrium number of applications is non-monotonic in the vacancy-to-unemployment ratio; (vi) a minimum wage increase can be welfare improving because it compresses the wage distribution and reduces the congestion effects caused by the socially excessive number of applications; and (vii) the only way to obtain efficiency is to impose a mandatory wage that eliminates wage dispersion altogether.

Language
Englisch

Bibliographic citation
Series: IZA Discussion Papers ; No. 1260

Classification
Wirtschaft
Unemployment: Models, Duration, Incidence, and Job Search
Labor Contracts
Subject
coordination frictions
internet
job search
minimum wage
wage dispersion
Lohnbildung
Lohnverhandlungen
Nash-Gleichgewicht
Lohnverhandlungstheorie
Arbeitsuche
Theorie

Event
Geistige Schöpfung
(who)
Gautier, Pieter A.
Moraga-González, José Luis
Event
Veröffentlichung
(who)
Institute for the Study of Labor (IZA)
(where)
Bonn
(when)
2004

Handle
Last update
10.03.2025, 11:43 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Gautier, Pieter A.
  • Moraga-González, José Luis
  • Institute for the Study of Labor (IZA)

Time of origin

  • 2004

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