Firm Choices of Wage-Setting Protocols in the Presence of Minimum Wages

In this paper we study the formation of wages in a frictional search market where firms can choose either to bargain with workers or post non-negotiable wage offers. Workers can secure wage increases for themselves by engaging in on-the-job search and either moving to firms that offer higher wages or, when possible, leveraging an outside offer into a higher wage at the current firm. We characterize the optimal wage posting strategy of non-negotiating firms and how this decision interacts with the presence of renegotiating firms. The model has important implications for worker wage dispersion, efficiency of worker mobility decisions, and welfare. We quantitatively examine these implications by estimating the model, using data on the wages and employment spells of low-skill workers in the United States. Finally, as a policy application of the study, we assess the impact of binding minimum wages on firm bargaining strategies and worker welfare in a general equilibrium setting.