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Residual Wage Disparity and Coordination Unemployment

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Author Info
Benoit Julien (Australian Graduate School of Managment)
John Kennes (Institute of Economics, University of Copenhagen)
Ian King (University of Auckland)

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Abstract

We ask: how much of the observed wage dispersion, among similar workers, can be explained by a lack of coordination among employers in their hiring practices?To answer this, we construct a directed search model with homogenous workers where firms can create either good or bad jobs, are uncoordinated with their job offers, and where on-the-job search is possible. Workers can exploit ex post opportunities when determining wages. The stationary equilibrium has both productivity dispersion - different wages due to different job qualities, and contract dispersion - different wages due to different market experiences for workers, and is constrained-efficient. Job arrival rates are endogenous and, as found in empirical studies, smaller for on-the-job searchers than for unemployed workers. We calibrate the model to the US economy and compare the implied statistics with those for empirical data. The equilibrium wage distribution is hump shaped, skewed significantly to the right, and, with baseline parameters, generates residual dispersion statistics 75-90% the size of those found empirically. However, the model overestimates the values of job finding rates and underestimates the average duration of unemployment.

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Paper provided by University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics in its series CAM Working Papers with number 2004-20.

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Length: 29 pages
Date of creation: Jun 2001
Date of revision: Nov 2004
Handle: RePEc:kud:kuieca:2004_20

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Find related papers by JEL classification:
E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
E25 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
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  14. Benoît Julien & John Kennes & Ian King, 2005. "Ex post bidding and efficient coordination unemployment," Canadian Journal of Economics, Canadian Economics Association, vol. 38(1), pages 174-193, February. [Downloadable!] (restricted)
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  21. Benoît Julien & John Kennes & Ian King, 2002. "Auctions Beat Posted Prices in a Small Market," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 158(4), pages 548-, December.
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  23. John Kennes & Benoit Julien & Ian King, 2002. "The Mortensen Rule and Efficient Coordination Unemployment," Macroeconomics 0206001, EconWPA. [Downloadable!]
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  24. Fabien Postel-Vinay & Jean-Marc Robin, 2002. "The Distribution of Earnings in an Equilibrium Search Model with State-Dependent Offers and Counteroffers," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(4), pages 989-1016, November. [Downloadable!] (restricted)
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Yosuke Oda, 2008. "Note on the Determinants of Wage Dispersion," Discussion Papers in Economics and Business 08-37, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP). [Downloadable!]
  2. Benoit Julien & John Kennes & Ian King & Sephorah Mangin, 2008. "Directed Search, Unemployment and Public Policy," Department of Economics - Working Papers Series 1049, The University of Melbourne. [Downloadable!]
  3. Kaas, Leo, 2008. "Variable Search Intensity in an Economy with Coordination Unemployment," IZA Discussion Papers 3697, Institute for the Study of Labor (IZA). [Downloadable!]
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