Ex-Post Bertrand Wage Competition in Labor Search

In Simple Words

Think of an auction where a home seller with multiple interested buyers can pit them against each other to drive the price up to maximum value, whereas a seller with only one buyer must accept the baseline minimum asking price.

Research question

Standard equilibrium search models assume fixed Nash bargaining over match surplus, which fails to capture how competing job offers alter wage setting and firm surplus distribution when worker search intensity accelerates.

Participants

Discrete-time search-and-matching model calibrated to N = 89,466 unemployed benefit spells in Denmark across 15 counties.

Study Design

Structural search model estimation comparing generalized Nash bargaining against an ex-post Bertrand competition wage mechanism using indirect inference.

Results

Under Bertrand competition, workers with one offer receive their reservation wage while workers with multiple offers extract the full match surplus. Under full activation rollout ($\tau = 1.0$), aggregate government spending on unemployment insurance decreases, but overall social welfare decreases monotonically from 0.9315 to 0.9100 due to severe vacancy posting costs and market congestion.

Takeaway

Incorporate ex-post Bertrand wage competition into equilibrium search models when evaluating labor market programs that increase simultaneous job offer probabilities per worker.

Related findings

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• Actual vs. Potential Experience Bias →Labour & employment

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