Equilibrium Wage Dispersion; An Example
Search models with posting and match-specific heterogeneity generate wage dispersion. Given K values for the match-specific variable, it is known that there are K reservation wages that could be posted, but generically never more than two actually are posted in equilibrium. What is unknown is when we get two wages, and which wages are actually posted. For an example with K = 3, we show equilibrium is unique; may have one wage or two; and when there are two, the equilibrium can display any combination of posted reservation wages, depending on parameters. We also show how wages, profits, and unemployment depend on productivity.
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- Albrecht, James W & Axell, Bo, 1983.
"An Equilibrium Model of Search Unemployment,"
Working Paper Series
99, Research Institute of Industrial Economics.
- Damien Gaumont & Martin Schindler & Randall Wright, 2005.
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PIER Working Paper Archive
05-017, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
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Journal of Monetary Economics,
Elsevier, vol. 51(8), pages 1599-1621, November.
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- Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
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