Template-Type: ReDIF-Paper 1.0 Series: Tinbergen Institute Discussion Papers Creation-Date: 2012-08-28 Number: 12-086/3 Author-Name: Xiaoming Cai Author-Workplace-Name: VU University Amsterdam Author-Name: Pieter A. Gautier Author-Workplace-Name: VU University Amsterdam Author-Name: Makoto Watanabe Author-Workplace-Name: VU University Amsterdam Title: Collective versus Decentralized Wage Bargaining and the Efficient Allocation of Resources Abstract: This discussion paper led to a publication in Labour Economics. An advantage of collective wage agreement is that search and business-stealing externalities can be internalized. A disadvantage is that it takes more time before an optimal allocation is reached because more productive firms (for a particular worker type) can no longer signal this by posting higher wages. Specifically, we consider a search model with two sided heterogeneity and on-the-job search. We compare the most favorable case of a collective wage agreement (i.e. the wage that a planner would choose under the constraint that all firms in a sector-occupation cell must offer the same wage) with the case without collective wage agreement. We find that collective wage agreements are never desirable if firms can commit ex ante to a wage and only desirable if firms cannot commit and the relative efficiency of on the job search to off- the job search is less than 20%. This result is hardly sensitive to the bargaining power of workers. Empirically we find both for the Netherlands and the US that this value is closer to 50%. Classification-JEL: E24, J62, J63, J64 Keywords: Collective wage agreements, on-the-job search, efficiency File-Url: https://papers.tinbergen.nl/12086.pdf File-Format: application/pdf File-Size: 339817 bytes Handle: RePEc:tin:wpaper:20120086