NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Wage Bargaining, Labor Turnover, and the Business Cycle: A Model with Asymmetric Information

Motty Perry, Gary Solon

NBER Working Paper No. 1359
Issued in May 1984
NBER Program(s):   LS

This paper presents a wage bargaining model in which the employer and employee are each uncertain about the other's reservation wage. Under specified circumstances, the model's equilibrium is shown to involve unilateral wage setting and inefficient labor turnover. In addition, aggregate demand shocks affect the equilibrium in a way that produces procyclical quits and countercyclical layoffs.These results are obtained without resorting to assumptions of nominal wage rigidity, long-term contracting, or aggregate price misperceptions.

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Document Object Identifier (DOI): 10.3386/w1359

Published: Perry, Motty and Gary Solon. "Wage Bargaining, Labor Turnover, and the Business Cycle: A Model with Asymmetric Information," Journal of Labor Economics, Vol. 3, No. 4, October 1985, pp. 421-433. citation courtesy of

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