Bargaining with renegotiation in models with on-the-job search

This paper studies a model with wage bargaining, random on-the-job search and renegotiation. Wages are determined by a bargaining process in which the firm and the worker alternate in making offers and there is a probability that this process breaks down. In the model, a given wage contract ends at a Poisson rate, and then the firm and the worker bargain over a new wage. In this setting, a higher wage decreases the firm's markup, but this effect is partly offset by lowering turnover, which increases match surplus. This increase in match surplus enables the worker to capture a higher share of the surplus. This positive effect of a higher wage on match surplus diminishes when they renegotiate more frequently.…

• EA
  Economic and Social Research Council

  Award: ES/L009633/1