Equilibrium Wage Dispersion and Interindustry Wage Differentials
This paper develops a search-theoretic explanation of interindustry wage differentials. Given coordination problems in the labor market, the probability of filling a vacancy is an increasing function of the wage offered; in equilibrium, firms that find vacancies more costly will offer higher wages. The model thus explains the persistence of interindustry wage differentials and their correlation with industry-average capital-labor ratio and profitability. Additionally, the model predicts that high wage firms will receive more applications per job opening and that wages in the labor market will behave as strategic complements. Copyright 1991, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
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Volume (Year): 106 (1991)
Issue (Month): 1 (February)
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