Pattern Bargaining as an Equilibrium Outcome
Abstract:  Pattern bargaining is a negotiating strategy that is often employed by industry-wide unions in oligopolistic industries to set wages.  The conventional wisdom is that pattern bargaining “takes labor out of competition” and therefore softens bargaining between the union and firms, resulting in higher industry wide wages.   However, this does not explain why firms agree to pattern bargaining.  We analyze a model in which the agents negotiate over the bargaining mechanism, the order of the negotiations and the wages when faced with uncertainty.  We show that whether pattern bargaining arises in equilibrium depends on the source of the uncertainty. Finally, we show that when equilibrium is characterized by pattern bargaining, it may harm consumers.  This provides an explanation as to how pattern bargaining can arise in equilibrium and why there is often strong political opposition to it.   (This paper is joint with Anthony Creane)
(Previous Version)

Globalization and Firm Level Adjustment with Imprefect Labor Markets (forthcoming in the Journal of International Economics)
Abstract:  In a model with search generated unemployment and heterogeneity on both sides of the labor market, we show that firms that export will be bigger, more capital intensive and pay higher wages than other firms. We also show that there will be imperfect persistence in the decision to export and that liberalization increases the wage gap between high and low skill workers.  We also explore the relationship between openness and productivity and show that in export-oriented markets openness can increase aggregate productivity while generating within-firm productivity losses for the weakest firms.  Finally, we show that openness can lead to within-firm productivity gains for the weakest firms in import-competing industries. (This paper is joint with Steven Matusz and Andrei Shevchenko)

Outsourcing Peter to Pay Paul: High Skill Expectations and Low-Skill Wages with Imperfect Labor Markets (forthcoming in Macroeconomic Dynamics)
Abstract:  In this paper we investigate the impact of globalization on wages earned by low and high-skill workers when openness leads to the outsourcing of high-tech jobs abroad. We have show that low-skill workers may become considerably better off after globalization due to the fact that high-skill workers start accepting low-tech jobs. The switch in the behavior of high-skill workers brings about general equilibrium responses from the firm side of the labor market with the outside options for low-skill workers improving significantly. This feedback works as a magnification mechanism that leads to a discontinuous wage increase that one would not be able to get without careful modeling frictions in the labor market. (This paper is joint with Steven Matusz and Andrei Shevchenko)

Trade Liberalization and Compensation (working paper version; published version appeared in the International Economic Review in 2006)
Abstract:  Trade liberalization harms some groups while generating aggregate net benefits.  In this paper we investigate the best way to compensate those who lose from freer trade.  We consider four labor market policies: wage subsidies, employment subsidies, trade adjustment assistance (i.e., unemployment insurance) and training subsidies.  Our goal is to find the policy that fully compensates each group of losers at the lowest cost to the economy (in terms of deadweight loss).  We argue that the best way to compensate those who bear the adjustment costs triggered by liberalization is with a temporary targeted wage subsidy while the best way to compensate those who remain trapped in the previously protected sector is with temporary targeted employment subsidies.  Our analysis also indicates that the cost of achieving full compensation is relatively low. (This paper is joint with Steven Matusz)