Strategic Wage Setting and Coordination Frictions with Multiple Applications

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IZA Discussion Papers ; No. 1260

Classification and Topics

• 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

Contributors, Places and Time

• 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

Further information

• Handle: http://hdl.handle.net/10419/20524
• Last update: 10.03.2025, 11:43 AM CET