Credible Threats in a Wage Bargaining Model with on-the-job Search

Abstract

In standard equilibrium search models with strategic wage bargaining and on-the-job search, renegotiation is permitted without requirement of a credible threat. Workers trigger renegotiation whenever they have a new outside option that could raise their wages. In this note I modify the model to be consistent with renegotiation by mutual agreement and I show that estimating the model without imposing credible threats for renegotiation generates downward bias in the estimates of the bargaining power.Credible Threats; On-the-job search; Wage bargaining