Endogenous Wage and Capital Dispersion, On-the-Job Search and the Matching Technology
AbstractThis paper presents a new model of endogenous wage and capital dispersion where heterogeneity is driven by entrepreneurial incentives to pay higher wages in order to attract and retain workers. The main contribution of this model is to provide a framework with microeconomic foundations that give rise to matching frictions, which can be used to understand the dynamic features of job-worker flows, wage dispersion and mobility as well as search on the job. The basic model is also extended to endogenise firms’ optimal investment in job-specific capital and search efforts undertaken by both employed and unemployed individuals. The empirical implications of this model are compared to those of the apparently more tractable and indeed, more frequently used aggregate matching technology. Existing differences turn out to be crucial for the empirical identification of the wage offer distribution and may also bias subsequent inferences about underlying search cost parameters.
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Bibliographic InfoPaper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 625.
Length: 36 pages
Date of creation: Nov 2002
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Find related papers by JEL classification:
- J39 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Other
- J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
- J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
This paper has been announced in the following NEP Reports:
- NEP-ALL-2002-12-02 (All new papers)
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