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A theory of wages and labor demand with intra-firm bargaining and matching frictions

Author

Listed:
  • Pierre Cahuc

    (X - École polytechnique - IP Paris - Institut Polytechnique de Paris, CREST - Centre de Recherche en Economie et Statistique [Bruz] - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz])

  • François Marque

    (ID2 - Institut Droit et Economie des Dynamiques en Europe - UPVM - Université Paul Verlaine - Metz)

  • Etienne Wasmer

    (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique)

Abstract

This article provides a model of labor market equilibrium with search andwithin-firm strategic bargaining.We yield explicit closed form solutions with heterogeneouslabor inputs and capital. The solution exhibits overemployment.Weshow that higher relative bargaining power for some groups of workers may leadto overemployment relative to other groups, with such other groups being underemployedinstead if they have a lower relative bargaining power. Similarly, thehold-up problem between capitalists and employees does not necessarily lead tounderinvestment in physical capital.

Suggested Citation

  • Pierre Cahuc & François Marque & Etienne Wasmer, 2008. "A theory of wages and labor demand with intra-firm bargaining and matching frictions," SciencePo Working papers Main hal-03415795, HAL.
    • Handle: RePEc:hal:spmain:hal-03415795
    DOI: 10.1111/j.1468-2354.2008.00502.x
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    JEL classification:

    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General

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