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Search Costs and Wage Inequality

Author

Listed:
  • Pi Jiancai
  • Zhang Kaiqi

    (Department of Economics, Nanjing University, Nanjing, China)

Abstract

This paper analyzes how search costs affect skilled-unskilled wage inequality. In the basic model, we find that an increase in skilled labor’s search costs will decrease wage inequality if the skilled labor market and the unskilled labor market are separated. In the extended model, our findings are as follows: (i) Even if there exists free entry into the unskilled labor market or the endogenous provision of public goods, an increase of search costs in the skilled labor market will decrease wage inequality; and (ii) if skilled search costs are negatively related to the skilled wage, wage inequality will be increased.

Suggested Citation

  • Pi Jiancai & Zhang Kaiqi, 2022. "Search Costs and Wage Inequality," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 22(1), pages 67-104, January.
    • Handle: RePEc:bpj:bejtec:v:22:y:2022:i:1:p:67-104:n:12
    DOI: 10.1515/bejte-2019-0168
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    More about this item

    Keywords

    search costs; endogenous search costs; skilled-unskilled wage inequality;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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