Competitive Wages in a Match with Ordered Contracts

Muriel Niederle

NBER Working Paper No. 12334
Issued in June 2006
NBER Program(s):   LS

A recent antitrust lawsuit against the National Residency Matching Program renewed interest in understanding the effects of a centralized match on wages of medical residents. Bulow and Levin (forthcoming) propose a simple model of the NRMP, in which firms set impersonal salaries simultaneously, before matching with workers, and show that a match leads to lower aggregate wages compared to any competitive outcome.

This paper models a feature present in the NRMP, ordered contracts, that allows firms to set several contracts while determining the order in which they try to fill these contracts. I show that the low wage equilibrium of Bulow and Levin is not robust to this feature of the NRMP, and competitive wages are once more an equilibrium outcome. Furthermore, a match with ordered contracts has different properties than former models of centralized matches with multiple contracts.

(284 K)

Published: Muriel Niederle, 2007. "Competitive Wages in a Match with Ordered Contracts," American Economic Review, American Economic Association, vol. 97(5), pages 1957-1969, December.

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