Document Type
Working Paper
Date of This Version
7-1-2009
Keywords
labor supply, unemployment, matching, efficiency wages
Abstract
A fixed wage is inefficient in a standard search model when workers endogenously separate from employment. We derive an efficient employment contract that involves agents paying a hiring fee (or bond) upon the formation of a match. We estimate the fixed wage and efficient contract assuming the hiring fee is unobservable, and find evidence to reject the efficient contract in favor of the fixed wage rule. A counterfactual experiment reveals the current level of labor force participation to be 9% below the efficient level, and a structural shift to the efficient contract improves welfare by nearly 4%.
Working Paper Number
0909
Recommended Citation
Engelhardt, Bryan and Fuller, David L., "Efficient Labor Force Participation with Search and Bargaining" (2009). Economics Department Working Papers. Paper 34.
https://crossworks.holycross.edu/econ_working_papers/34