Search, Bargaining, and the Business Cycle

Abstract

In this paper we construct a model where workers engaging in repeated nonsequential search auction their labor services to the highest bidder. The auction mechanism results in a nondegenerate equilibrium wage distribution. Under the assumption that the cumulative distribution function of match specific productivity is log concave, workers search more than the socially efficient number of firms. 1f workers can repeatedly engage in nonsequential search, the workers’ reservation wage is too low for the efficient matching of workers and employers when firms make take-it-or-leave-it employment offers. When workers make take-it-or-leave-it employment offers, however, the workers’ reservation wage is set too high for the efficient matching of workers and employers. Finally, we allow for business cycle effects by assuming that only a portion of firms are hiring at any given time. Contrary to the standard sequential search model, we show that the marginal gains to additional search may increase as the portion of firms hiring declines.