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'Residual' Wage Disparity in Directed Search Equilibrium

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Author Info

  • John Kennes

    (The University of Auckland)

  • Ian Paul King

    (The University of Auckland)

  • Benoit Julien

    (The University of Miami)

Abstract

We examine how much of the observed wage dispersion among similar workers can be explained as a consequence of a lack of coordination among employers. To do this, we construct a directed search model with homogenous workers but where firms can create either good or bad jobs, aimed at either employed or unemployed workers. Workers in our model can also sell their labor to the highest bidder. The stationary equilibrium has both technology dispersion \226 different wages due to different job qualities, and contract dispersion \226 different wages due to different market experiences for workers. The equilibrium is also constrained- efficient \226 in stark contrast to undirected search models with technology dispersion. We then calibrate the model to the US economy and show that the implied dispersion measures are quite close to those in the data.

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Bibliographic Info

Paper provided by EconWPA in its series Macroeconomics with number 0205003.

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Length: 35 pages
Date of creation: 27 Apr 2002
Date of revision:
Handle: RePEc:wpa:wuwpma:0205003

Note: Type of Document - pdf; prepared on IBM PC ; to print on Franciscan monk; pages: 35 ; figures: included. This paper was presented at the 2001 NBER summer workshop
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Web page: http://128.118.178.162

Related research

Keywords: Directed search; wage dispersion; Pissarides; matching technology; heterogeneity; On-the-job search;

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References

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  1. Arthur Sweetman & Peter Kuhn, 1998. "Unemployment Insurance and Quits in Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 31(3), pages 549-572, August.
  2. Shi, Shouyong, 2001. "Frictional Assignment. I. Efficiency," Journal of Economic Theory, Elsevier, vol. 98(2), pages 232-260, June.
  3. Kenneth Burdett & Shouyong Shi & Randall Wright, 2001. "Pricing and Matching with Frictions," Journal of Political Economy, University of Chicago Press, vol. 109(5), pages 1060-1085, October.
  4. Christopher A. Pissarides, 1992. "Search Unemployment with on-the-job Search," CEP Discussion Papers dp0074, Centre for Economic Performance, LSE.
  5. Kenneth Burdett & Dale T. Mortensen, 1989. "Equilibrium Wage Differentials and Employer Size," Discussion Papers 860, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  6. Julien, B. & Kennes, J. & King, I., 1998. "Bidding for Labour," Working Papers dp98-03, CRABE, Department of Economics, Simon Fraser University.
  7. Burdett, Kenneth & Judd, Kenneth L, 1983. "Equilibrium Price Dispersion," Econometrica, Econometric Society, vol. 51(4), pages 955-69, July.
  8. Moen, E.R., 1995. "Competitive Search Equilibrium," Memorandum 37/1995, Oslo University, Department of Economics.
  9. Steven J. Davis, 2001. "The Quality Distribution of Jobs and the Structure of Wages in Search Equilibrium," NBER Working Papers 8434, National Bureau of Economic Research, Inc.
  10. 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.
  11. Acemoglu, Daron & Shimer, Robert, 2000. "Wage and Technology Dispersion," Review of Economic Studies, Wiley Blackwell, vol. 67(4), pages 585-607, October.
  12. McAfee, R Preston & McMillan, John, 1987. "Auctions and Bidding," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 699-738, June.
  13. Peters, Michael, 1984. "Bertrand Equilibrium with Capacity Constraints and Restricted Mobility," Econometrica, Econometric Society, vol. 52(5), pages 1117-27, September.
  14. Montgomery, James D, 1991. "Equilibrium Wage Dispersion and Interindustry Wage Differentials," The Quarterly Journal of Economics, MIT Press, vol. 106(1), pages 163-79, February.
  15. Julien Benoit & Kennes John & King Ian Paul, 2001. "Auctions and Posted Prices in Directed Search Equilibrium," The B.E. Journal of Macroeconomics, De Gruyter, vol. 1(1), pages 1-16, July.
  16. Acemoglu, Daron, 2001. "Good Jobs versus Bad Jobs," Journal of Labor Economics, University of Chicago Press, vol. 19(1), pages 1-21, January.
  17. Katz, Lawrence F. & Autor, David H., 1999. "Changes in the wage structure and earnings inequality," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 26, pages 1463-1555 Elsevier.
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Citations

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Cited by:
  1. John Kennes, 2004. "Competitive Auctions: Theory and Application," CAM Working Papers 2004-17, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics.
  2. John Kennes & Aaron Schiff, 2003. "The Value of a Reputation System," Industrial Organization 0301011, EconWPA.
  3. John Kennes & Benoit Julien & Ian King, 2002. "The Mortensen Rule and Efficient Coordination Unemployment," Macroeconomics 0206001, EconWPA.

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