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Firm-Specific Skills, Wage Bargaining, and Efficiency

Mumcu, Ayşe (1999): Firm-Specific Skills, Wage Bargaining, and Efficiency.

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We study the bargaining relationship between a firm and its incumbent worker who possesses firm-specific human capital. We show that, in the contract renewal stage, the worker's ability to use his firm-specific skills strategically increases his bargaining power vis-a-vis the firm. The firm can threaten to fire the worker and hire a new inexperienced worker, but this threat is not always credible. Even though the bargaining takes place in an environment with perfect information, the game has inefficient equilibria where delays occur in real time.

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