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Steady-State Equilibrium in a Model of Short-Term Wage-Posting

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  • Alan Manning

Abstract

This paper takes the canonical Burdett-Mortensen model of wage- posting and relaxes the assumption that wages are set once-for-all, instead assuming they can only be committed one period at a time. It derives a closed-form solution for a steady-state Markov Rank-Preserving Equilibrium and shows how this relates to the canonical model and performs some comparative statics on it. By means of example it is shown that a Rank-Preserving Equilibrium may fail to exist and that this non-existence can be a problem for plausible parameter values. The paper discusses how the model can be modified to ensure existence of a Rank-Preserving equilibrium. It is also shown, by means of example, how the opposite, a Rank-Inverting Equilibrium may exist.

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File URL: http://cep.lse.ac.uk/pubs/download/dp1158.pdf
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Bibliographic Info

Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp1158.

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Date of creation: Jul 2012
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Handle: RePEc:cep:cepdps:dp1158

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Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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Keywords: Wage-posting; search;

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  1. Giuseppe Moscarini & Fabien Postel-Vinay, 2010. "Stochastic Search Equilibrium," Levine's Working Paper Archive 661465000000000001, David K. Levine.
  2. Melvyn G. Coles, 2001. "Equilibrium Wage Dispersion, Firm Size and Growth," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(1), pages 159-187, January.
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