Wage bargaining and turnover costs with heterogeneous labor : The no - screening

We study the effects of mobility costs in a model of wage bargaining between heterogeneous workers and firms, where there is instantaneous matching, free firm entry, and workers' individual productivities are discovered by firms only after being hired.We derive the employment level and the minimum quality standard, in the market solution and in the socially efficient solution. We show that the minimum quality standard chosen by firms is always overoptimal. The rate of hiring among wanted workers is also overoptimal when workers have low bargaining power, but suboptimal when this bargainig power is high. In the latter case overall employment is also suboptimal. The composition of the employed labor force is always inefficient, with a too high average quality of labor. Hiring standards increase when dissipative firing costs for tenured workers increase, and drop when costs of firing unwanted worker increase. An increase in the latter may raise overall employment.