We examine wage competition in a model where identical workers choose the number of jobs to apply for and identical firms simultaneously post a wage. The Nash equilibrium of this game exhibits the following properties: (i) an equilibrium where workers apply for just one job exhibits unemployment and absence of wage dispersion; (ii) an equilibrium where workers apply for two or for more (but not for all) jobs always exhibits wage dispersion and, typically, unemployment; (iii) the equilibrium wage distribution with a higher vacancy-to-unemployment ratio first-order stochastically dominates the wage distribution with a lower level of labor market tightness; (iv) the average wage is non-monotonic in the number of applications; (v) the equilibrium number of applications is non-monotonic in the vacancy-to-unemployment ratio; (vi) a minimum wage increase can be welfare improving because it compresses the wage distribution and reduces the congestion effects cause! d by the socially excessive number of applications; and (vii) the only way to obtain efficiency is to impose a mandatory wage that eliminates wage dispersion altogether.

coordination frictions, search, wage dispersion, wage setting
Externalities (jel D62), Search; Learning; Information and Knowledge (jel D83), Employment Determination; Job Creation; Demand for Labor; Self-Employment (jel J23), Contracts: Specific Human Capital, Matching Models, Efficiency Wage Models, and Internal Labor Markets (jel J41), Unemployment: Models, Duration, Incidence, and Job Search (jel J64)
hdl.handle.net/1765/6640
Tinbergen Institute Discussion Paper Series
Tinbergen Institute

Gautier, P.A, & Moraga-Gonzalez, J.L. (2004). Strategic Wage Setting and Coordination Frictions with Multiple Applications (No. TI 04-063/1). Tinbergen Institute Discussion Paper Series. Retrieved from http://hdl.handle.net/1765/6640