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Equilibrium Wage Dispersion with Worker and Employer Heterogeneity

Listed author(s):
  • Fabien Postel-Vinay

    (LEA - Laboratoire d'Economie Appliquée - INRA - Institut National de la Recherche Agronomique)

  • Jean-Marc Robin

    ()

    (EUREQUA - Equipe Universitaire de Recherche en Economie Quantitative - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, CREST - Centre de Recherche en Économie et Statistique - INSEE - ENSAE ParisTech - École Nationale de la Statistique et de l'Administration Économique)

We construct and estimate an equilibrium search model with on–the–job–search. Firms make take–it–or–leave–it wage offers to workers conditional on their characteristics and they can respond to the outside job offers received by their employees. Unobserved worker productive heterogeneity is introduced in the form of cross–worker differences in a "competence" parameter. On the other side of the market, firms also are heterogeneous with respect to their marginal productivity of labor. The model delivers a theory of steady–state wage dispersion driven by heterogenous worker abilities and firm productivities, as well as by matching frictions. The structural model is estimated using matched employer and employee French panel data. The exogenous distributions of worker and firm heterogeneity components are nonparametrically estimated. We use this structural estimation to provide a decomposition of cross–employee wage variance. We find that the share of the cross–sectional wage variance that is explained by person effects varies across skill groups. Specifically, this share lies close to 40% for high–skilled white collars, and quickly decreases to 0% as the observed skill level decreases. The contribution of market imperfections to wage dispersion is typically around 50%

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Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number hal-00357751.

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Length:
Date of creation: 2002
Publication status: Published in Econometrica, Econometric Society, 2002, 70 (6), pp.2295-2350. 〈10.1111/1468-0262.00377〉
Handle: RePEc:hal:cesptp:hal-00357751
DOI: 10.1111/1468-0262.00377
Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-00357751
Contact details of provider: Web page: https://hal.archives-ouvertes.fr/

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  1. repec:adr:anecst:y:2002:i:67-68:p:11 is not listed on IDEAS
  2. Fabien Postel-Vinay & Jean-Marc Robin, 2002. "The Distribution of Earnings in an Equilibrium Search Model with State-Dependent Offers and Counteroffers," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(4), pages 989-1016, November.
  3. Fabien Postel-Vinay & Jean-Marc Robin, 2002. "Equilibrium Wage Dispersion with Worker and Employer Heterogeneity," Econometrica, Econometric Society, vol. 70(6), pages 2295-2350, November.
  4. Bontemps, Christian & Robin, Jean-Marc & van den Berg, Gerard J, 2000. "Equilibrium Search with Continuous Productivity Dispersion: Theory and Nonparametric Estimation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(2), pages 305-358, May.
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