Wage determination and efficiency in search equilibrium
PA Diamond - The Review of Economic Studies, 1982 - academic.oup.com
The Review of Economic Studies, 1982•academic.oup.com
Using a simple search technology and the Nash bargaining solution, the paper derives the
steady state equilibrium negotiated wage as a function of the equilibrium unemployment and
vacancy rates. For this wage, the lifetime expected present discounted value of earnings of a
new worker is compared with the social marginal product of a new worker. These are not
generally equal implying inefficient incentives for labour mobility.
steady state equilibrium negotiated wage as a function of the equilibrium unemployment and
vacancy rates. For this wage, the lifetime expected present discounted value of earnings of a
new worker is compared with the social marginal product of a new worker. These are not
generally equal implying inefficient incentives for labour mobility.
Abstract
Using a simple search technology and the Nash bargaining solution, the paper derives the steady state equilibrium negotiated wage as a function of the equilibrium unemployment and vacancy rates. For this wage, the lifetime expected present discounted value of earnings of a new worker is compared with the social marginal product of a new worker. These are not generally equal implying inefficient incentives for labour mobility.
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