Equilibrium Wage Dispersion: An Example
Search models with wage posting and match-specific heterogeneity generate wage dispersion. Given K values for the match-specific variable, it is known that there are K reservation wages that could be posted, but generically never more than two actually are posted in equilibrium. What is unknown is when we get two wages, and which of the reservation wages are actually posted. For an example with K = 3, we show equilibrium is unique, may have one wage or two, and when there are two, the equilibrium can display any combination of posted reservation wages, depending on parameters. We also show how wages, profits and unemployment depend on productivity.
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Volume (Year): 6 (2006)
Issue (Month): 2 (October)
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References listed on IDEAS
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"Price setting, price dispersion, and the value of money: or, the law of two prices,"
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"An Equilibrium Model of Search Unemployment,"
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