1 Match Me if You Can: Wage Secrecy and Matching in a Search Model

This paper investigates the strategic behaviors of firms and workers in an equilibrium job-search model with on-the-job search. We introduce the possibility of the adoption by both workers and firms of a “wage secrecy norm ” that influences the information structure in the market. By doing so, we endogenize strategic decisions that firms must make about whether or not to match their employees ’ outside offers. Our model presents settings under which workers ’ information sets shape the outcome of the market in respect to wages, wage profiles, and search intensity. We describe the conditions that make firms and workers better off by adopting a normative standard of wage secrecy, in which workers do not discuss their wages and firms impose secrecy policies. We show that the degree of competitiveness in the market for labor may establish one of three possible equilibria in steady state: when employers ’ competitiveness is low, firms apply a full information policy and match relatively few outside offers; when competitiveness is medium, firms apply a secrecy policy (and workers comply with it) and discriminate among workers in whether or not to match outside offers; finally, when the competitiveness is high, firms may increase workers ’ wages to the non-searching level and match all outside offers