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Residual Wage Disparity and Coordination Unemployment

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  • Benoit Julien

    (Australian Graduate School of Managment)

  • John Kennes

    (Institute of Economics, University of Copenhagen)

  • Ian King

    (University of Auckland)

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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Bibliographic Info

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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Cited by:
  1. Benoit Julien & John Kennes & Ian King & Sephorah Mangin, 2008. "Directed Search, Unemployment and Public Policy," Department of Economics - Working Papers Series, The University of Melbourne 1049, The University of Melbourne.
  2. Wolthoff, Ronald P., 2011. "It's About Time: Implications of the Period Length in an Equilibrium Job Search Model," IZA Discussion Papers 6002, Institute for the Study of Labor (IZA).
  3. John Kennes, 2008. "Technology Dispersion and Labor Market Fluctuations," 2008 Meeting Papers 1061, Society for Economic Dynamics.
  4. Aaron Schiff & Martin Browning & John Kennes, 2005. "Lots of Heterogeneity in a Matching Model," 2005 Meeting Papers, Society for Economic Dynamics 799, Society for Economic Dynamics.
  5. John Kennes & Daniel le Maire, 2013. "Job Heterogeneity and Coordination Frictions," Economics Working Papers, School of Economics and Management, University of Aarhus 2013-09, School of Economics and Management, University of Aarhus.
  6. Derek Stacey, 2012. "Information, Commitment, and Separation in Illiquid Housing Markets," 2012 Meeting Papers, Society for Economic Dynamics 401, Society for Economic Dynamics.
  7. repec:ltr:wpaper:2010.03 is not listed on IDEAS
  8. Lawrence Uren & Ian King & Suren Basov, 2011. "The Employed, the Unemployed, and the Unemployable: Directed Search with Worker Heterogeneity," 2011 Meeting Papers 292, Society for Economic Dynamics.
  9. John Kennes & Daniel le Maire, 2010. "Coordination Frictions and Job Heterogeneity: A Discrete Time Analysis," Economics Working Papers, School of Economics and Management, University of Aarhus 2010-05, School of Economics and Management, University of Aarhus.
  10. John Kennes & Daniel le Maire, 2013. "Competing Auctions of Skills," CAM Working Papers, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics 2014_01, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics.
  11. Ronald Wolthoff, 2009. "Ex Ante and Ex Post Inefficiency in Search and Matching Models," 2009 Meeting Papers, Society for Economic Dynamics 774, Society for Economic Dynamics.

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