Endogenous Job Destructions and the Distribution of Wages

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The Nash wage bargaining

Effects of training investments on wages and job destructions are highly dependent on the wage setting game. To stress that point, we now derive the partial equilibrium with an insider wage structure as proposed by Mortensen and Pissarides (1999). When firms support hiring costs (such as a training cost), a natural holdup problem may arise. Indeed, new workers have an incentive to renegotiate immediately after been hired as training investments require continuing relationships to be efficient. Starting wages are then not credible. Therefore, second tier wages apply initially as well as subsequent to any shock to match productivity (“insider wage”). The ex-post bargaining process increases employees’ threat point. Demanding a higher wage, workers capture some of the rents created by the training cost without paying for, leading finally to a holdup problem.

Restoring efficiency

This last section investigates the way to restore the optimality of equilibrium choices. Job destruction decisions and training investment decisions are strongly complementary: a fraction γ of the expected training cost θq(θ)C(k), that the firm saves when the worker stays in the match, is captured by the worker through the wage bargaining (holdup). This rises the productivity threshold, leading finally to an excess of job destructions. Firing taxes F can be implemented to reach the efficient level of job destructions, together with training subsidies T get at the time of match formation in order to lower the training cost.

The Nash wage bargaining

Wages are determined by a Nash bargaining. The firm and the worker share the global surplus generated by a job according to their bargaining power. But, following Mortensen and Pissarides (1999), we first assume that the wage structure that arises when firms are liable for hiring costs (a training cost here) is a two-tier one. On one hand, the initial wage reflects the fact that workers share in the initial hiring (training) cost by accepting a lower wage. On the other hand, renegotiated wages subsequent to match productivity shocks no longer include training costs since they are sunk.

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Acknowledgements
Résumé français (French summary)
Introduction and summary
1 Returns to firm-provided training in France: Evidence on mobility and wages
1.1 Introduction
1.2 Literature review on training and mobility
1.3 Data and descriptive statistics
1.4 The effect of training on mobility
1.5 Additional results on wages
1.6 Conclusion
2 Stricter employment protection and firms’ incentives to train: The case of French older workers
2.1 Introduction
2.2 Qualitative analysis: A simplified theoretical model
2.3 Data and descriptive statistics
2.4 Quantitative analysis: Identification strategy and results
2.5 Conclusion
3 Inefficient Job Destructions and Training with Holdup
3.1 Introduction
3.2 Labor market equilibrium
3.3 Optimal labor market policy
3.4 Conclusion
3.5 Appendix
4 Endogenous Job Destructions and the Distribution of Wages
4.1 Introduction
4.2 Model
4.3 Data
4.4 Simulations of the equilibrium wage distribution
4.5 Conclusion
5 Training, job destruction and wage distribution
5.1 Introduction
5.2 Model
5.3 Model properties: Quantitative analysis
5.4 Optimal labor market policy
5.5 Conclusion
5.6 Appendix
Bibliography

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