Equilibrium Wage Dispersion, Firm Size, and Growth

Self-employment in an equilibrium model of the labor market

“…The higher the wage a firm posts, the larger the firm (fewer quits and more hires); this is at the cost of making less profit per worker. As pointed out by Coles (2001), this is not a dynamically consistent wage posting strategy without commitment on wages. To see this, imagine a firm has grown to its steady state size.…”

“…Over a period dt → 0, no workers will quit and the firm will make strictly greater profits. Coles (2001) identifies a dynamically consistent equilibrium without relying on commitment. Interestingly, the wages posted by self-employed recruiters are a dynamically consistent strategy, without having to rely on commitment.…”

Collective versus Decentralized Wage Bargaining and the Efficient Allocation of Resources

“…First, in the centralized case, all firms of the same type pay the same wage and to make this case as favorable as possible, we set this wage optimally from a social point of view. In the decentralized case, we assume first that wages are determined by bilaterally efficient bargaining between the worker and the firm where firms cannot commit on future wage payments, see Coles (2001), Shimer (2006), Gautier et al (2011) and Coles and Mortensen (2011). So, firms pay only "no-quit" premia but no "hiring" premia.…”

The Role of Expectation on Job Search and the Firm Size Effect on Wages

“…Although payment of wages occurs over time in their model, there is only one decision node for each firm at the beginning. Coles (2001) modifies their model to allow firms to change wages in each period. The explanation of the firm size-wage effect in these papers is that some firms choose to be large and thus pay high wages to attract many workers, while others choose to be small and pay low wages.…”