Bargaining Models and Identifying the Wage Equation

It is commonly asserted that the standard wage equation derived from bargaining theory cannot be identified. Here, it is argued that the case for this alleged failure rests on an outmoded definition of identification. Newer concepts based on non-stationarities, cointegration and reduced rank are appropriate. An empirical example applying these concepts shows that the standard model can be derived and that far from being underidentified, it is actually overidentified.