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Holdup and wage dispersion

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  • Lang, Youze
  • Zhu, Weichao

Abstract

This paper provides a search-theoretic model of the labor market, in which large firms hire workers sequentially and wages are bargained with full commitment. The firm's optimal vacancy-posting strategy trades off the fact that a larger size decreases marginal benefits from subsequent jobs, but avoids higher future recruiting costs attributable to the holdup effect. The holdup effect is dominant if the production function is not sufficiently concave, resulting in firm-size wage premium. The equilibrium features wage dispersion both within and between firms. When calibrated to the U.S. data, the extended model accounts for 67%–84% of the observed wage dispersion, among which 13%–27% is attributed to the holdup effect.

Suggested Citation

  • Lang, Youze & Zhu, Weichao, 2020. "Holdup and wage dispersion," Economic Modelling, Elsevier, vol. 90(C), pages 135-142.
    • Handle: RePEc:eee:ecmode:v:90:y:2020:i:c:p:135-142
    DOI: 10.1016/j.econmod.2020.04.018
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    References listed on IDEAS

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    Cited by:

    1. Zhu, Weichao & Wang, Lu & Lang, Youze, 2022. "The costs and benefits of tournament in a frictional labor market," Economic Modelling, Elsevier, vol. 113(C).

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    More about this item

    Keywords

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    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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