Frictional Wage Inequality: A Puzzle?
AbstractIn this paper we document that "frictional wage inequality" (i.e. due to pure luck in the matching process in the labor market) is large and that both the standard McCall search model and the simplest Diamond-Mortensen-Pissarides matching model, reasonably calibrated, are strikingly unable to generate the amount of dispersion observed in the data. Next, we discuss some extensions of the model that do not work (e.g. risk-aversion) and others that are more promising (e.g. on-the-job search and heterogeneity in the value of leisure)
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Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 7.
Date of creation: 03 Dec 2006
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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
Web page: http://www.EconomicDynamics.org/society.htm
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wage inequality; search;
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- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
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- Andreas Hornstein & Per Krusell & Giovanni L. Violante, 2005.
"The Replacement Problem In Frictional Economies: A Near-Equivalence Result,"
Journal of the European Economic Association,
MIT Press, vol. 3(5), pages 1007-1057, 09.
- Andreas Hornstein & Per Krusell & Giovanni L. Violante, 2005. "The replacement problem in frictional economies : a near equivalence result," Working Paper 05-01, Federal Reserve Bank of Richmond.
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