Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 2004-06-01
Revision-Date: 2004-08-16
Number: 04-063/1
Author-Name: Pieter A. Gautier
Author-Email: gautier@tinbergen.nl
Author-Workplace-Name: Erasmus University Rotterdam
Author-Name: Jose L. Moraga
Author-Email: moraga@few.eur.nl
Author-Workplace-Name: University of Groningen
Title: Strategic Wage Setting and Coordination Frictions with Multiple Applications
Abstract: 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 cause! d 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.
Classification-JEL: D62; D83; J23; J41; J64
Keywords: search; wage setting; coordination frictions; wage dispersion
File-Url: https://papers.tinbergen.nl/04063.pdf
File-Format: application/pdf
File-Size: 734142 bytes
Handle: RePEc:tin:wpaper:20040063