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Directed Search without Wage Commitment and the Role of Labor Market Institutions

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  • Adrian Masters

Abstract

An urn-ball matching model of directed search is analyzed in which the usual assumption of commitment to posted wages is dropped. One-on-one matches lead to a Nash bargained wage but when multiple applicants arrive competition drives the workers down to their continuation value. A minimum wage can act as a commitment device when (as in the USA) willful underpayment carries a stiffer penalty than "inadvertetn underpayment. The theory sheds new light on why firms appear to voluntarily bind themselves into paying higher wages than they would otherwise pay. Robustness to various sources of heterogeneity is considered

Suggested Citation

  • Adrian Masters, 2005. "Directed Search without Wage Commitment and the Role of Labor Market Institutions," Discussion Papers 05-02, University at Albany, SUNY, Department of Economics.
    • Handle: RePEc:nya:albaec:05-02
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    File URL: http://www.albany.edu/economics/research/workingp/2005/commitment.pdf
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    Cited by:

    1. Matthew Doyle & Jacob Wong, 2013. "Wage Posting Without Full Commitment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(2), pages 231-252, April.
    2. Alexiadis, Stilianos & Eleftheriou, Konstantinos & Nijkamp, Peter, 2013. "Technology adoption within a search model: Evidence from OECD countries," Economic Modelling, Elsevier, vol. 33(C), pages 137-148.

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