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The Role of Headhunters in Wage Inequality: It's All about Matching

Author

Listed:
  • Gorn, A.

Abstract

This study relates the increase in the U.S. top wages to the increasing prominence of headhunters. Headhunters improve the matching between firms and employees via two channels: screening of candidates and passive on-the-job search. I incorporate headhunters in the labor market framework of random search with two-sided heterogeneity. The calibrated model shows that headhunters can account for 35% of the increase in the top 1% wage share and 69% of the increase in the top 10% wage share in the U.S. from 1970 to 2010. I provide supporting cross-country evidence on headhunter hires/fees and top income growth, as well as micro evidence for CEO compensation.

Suggested Citation

  • Gorn, A., 2019. "The Role of Headhunters in Wage Inequality: It's All about Matching," Cambridge Working Papers in Economics 1926, Faculty of Economics, University of Cambridge.
  • Handle: RePEc:cam:camdae:1926
    Note: ag980
    as

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    File URL: http://www.econ.cam.ac.uk/research-files/repec/cam/pdf/cwpe1926.pdf
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    References listed on IDEAS

    as
    1. Katarína Borovičková & Robert Shimer, 2017. "High Wage Workers Work for High Wage Firms," NBER Working Papers 24074, National Bureau of Economic Research, Inc.
    2. Bastian Schulz & Benjamin Lochner, 2016. "Labor Market Sorting in Germany," 2016 Meeting Papers 1298, Society for Economic Dynamics.
    3. Marcus Hagedorn & Tzuo Hann Law & Iourii Manovskii, 2017. "Identifying Equilibrium Models of Labor Market Sorting," Econometrica, Econometric Society, vol. 85, pages 29-65, January.
    4. Fabien Postel-Vinay & Jean-Marc Robin, 2002. "Equilibrium Wage Dispersion with Worker and Employer Heterogeneity," Post-Print hal-00357751, HAL.
    5. Benjamin Lochner & Bastian Schulz, 2016. "Labor Market Sorting in Germany," CESifo Working Paper Series 6066, CESifo Group Munich.
    6. Peter Cappelli & Monika Hamori, 2013. "Who Says Yes When the Headhunter Calls? Understanding Executive Job Search Behavior," NBER Working Papers 19295, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    wage distribution; top incomes; sorting; on-the-job search; headhunters;

    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
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs

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