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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- Albrecht, James & Axell, Bo, 1983.
"An Equilibrium Model of Search Unemployment,"
83-10, C.V. Starr Center for Applied Economics, New York University.
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- Gaumont, Damien & Schindler, Martin & Wright, Randall, 2006.
"Alternative theories of wage dispersion,"
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Elsevier, vol. 50(4), pages 831-848, May.
- Gaumont D. & Schindler M. & Wright R., 2005. "“Alternative Theories of Wage Dispersion”," Working Papers ERMES 0505, ERMES, University Paris 2.
- Damien Gaumont & Martin Schindler & Randall Wright, 2005. "Alternative Theories of Wage Dispersion," PIER Working Paper Archive 05-017, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
- Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
- Richard Rogerson & Robert Shimer & Randall Wright, 2004. "Search-Theoretic Models of the Labor Market-A Survey," NBER Working Papers 10655, National Bureau of Economic Research, Inc.
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