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Social Preferences, Skill Segregation and Wage Dynamics

  • Cabrales Goitia Antonio

    ()

    (UNIVERSITY CARLOS III OF MADRID)

  • Calvó-Armengol Antoni

    ()

    (UNIVERSITY CARLOS III OF MADRID)

  • Pavoni Nicola

    ()

    (POMPEU FABRA UNIVERSITY AUTONOMOUS UNIVERSITY OF BARCELONA UNIVERSITY COLLEGE LONDON)

We study the earning structure and the equilibrium assignment of workers to firms in a model where workers have social preferences and skills are perfectly substitutable in production. We allow firms to offer long-term contracts and for frictions in the labour market in the form of mobility costs. For low moving costs between firms, heterogeneous productivities lead to widespread workplace skill segregation and the whole market wage dispersion is explained by between firm differences. In a labor market with intermediate levels of mobility costs, segregation is more moderate and wage dispersion arises both within and across firms. For high levels of moving costs, the whole wage dispersion is within the firm and becomes zero when the moving costs are sufficiently high. We show that long-term contracts in the presence of social preferences associate within-firm wage dispersion with novel internal labor market features such as a dynamic form of wage compression, gradual promotions an dwage non-monotonicity.

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Paper provided by Fundacion BBVA / BBVA Foundation in its series Working Papers with number 201053.

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Length: 53
Date of creation: Jan 2007
Date of revision:
Handle: RePEc:fbb:wpaper:201053
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  1. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680, March.
  2. Thomas, Jonathan & Worrall, Tim, 1988. "Self-enforcing Wage Contracts," Review of Economic Studies, Wiley Blackwell, vol. 55(4), pages 541-54, October.
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  8. Legros, Patrick & Newman, Andrew F, 2002. "Monotone Matching in Perfect and Imperfect Worlds," Review of Economic Studies, Wiley Blackwell, vol. 69(4), pages 925-42, October.
  9. Hibbs Jr., Douglas A. & Locking, Håkan, 2000. "Wage Dispersion and Productive Efficiency: Evidence For Sweden," Working Papers in Economics 21, University of Gothenburg, Department of Economics.
  10. de Bartolome, Charles A M, 1990. "Equilibrium and Inefficiency in a Community Model with Peer Group Effects," Journal of Political Economy, University of Chicago Press, vol. 98(1), pages 110-33, February.
  11. Kremer, M & Maskin, E, 1996. "Wage Inequality and Segregation by Skill," Working papers 96-23, Massachusetts Institute of Technology (MIT), Department of Economics.
  12. Guth, Werner & Schmittberger, Rolf & Schwarze, Bernd, 1982. "An experimental analysis of ultimatum bargaining," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 367-388, December.
  13. Benabou, Roland, 1993. "Workings of a City: Location, Education, and Production," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 619-52, August.
  14. Nicola Pavoni, 2009. "Optimal Unemployment Insurance, With Human Capital Depreciation, And Duration Dependence," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(2), pages 323-362, 05.
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