A theory of wages and labor demand with intra-firm bargaining and matching frictions
Résumé
This article provides a model of labor market equilibrium with search andwithin-firm strategic bargaining.We yield explicit closed form solutions with heterogeneouslabor inputs and capital. The solution exhibits overemployment.Weshow that higher relative bargaining power for some groups of workers may leadto overemployment relative to other groups, with such other groups being underemployedinstead if they have a lower relative bargaining power. Similarly, thehold-up problem between capitalists and employees does not necessarily lead tounderinvestment in physical capital.