A THEORY OF WAGES AND LABOR DEMAND WITH INTRA‐FIRM BARGAINING AND MATCHING FRICTIONS* |
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| Authors: | Pierre Cahuc Francois Marque Etienne Wasmer |
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| Institution: | 1. Crest, Ecole Polytechnique, IZA, and CEPR;2. Universite de Metz;3. Sciences Po Paris, OFCE IZA, and CEPR;4. We thank Jean‐Michel Grandmont, Christian Haefke, Michael Keane, Guy Laroque, Andreu Mas Colell, and Richard Rogerson for their discussions and comments. This article was presented at INSEE‐CREST, Université Laval in Quebec, Université de Montreal, Labour Seminar at UQAM, Pompeu Fabra, and Arizona State University. We also thank three referees for their very helpful comments. Please address correspondence to: Pierre Cahuc, Department of Economics, CREST‐INSEE, Timbre J 360, 15, Boulevard Gabriel‐Peri, Malakoff 92245, France. E‐mail: . |
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| Abstract: | This article provides a model of labor market equilibrium with search and within‐firm strategic bargaining. We yield explicit closed form solutions with heterogeneous labor inputs and capital. The solution exhibits overemployment. We show that higher relative bargaining power for some groups of workers may lead to overemployment relative to other groups, with such other groups being underemployed instead if they have a lower relative bargaining power. Similarly, the hold‐up problem between capitalists and employees does not necessarily lead to underinvestment in physical capital. |
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