IDEAS home Printed from https://ideas.repec.org/p/iza/izadps/dp625.html
   My bibliography  Save this paper

Endogenous Wage and Capital Dispersion, On-the-Job Search and the Matching Technology

Author

Listed:
  • Galindo-Rueda, Fernando

    (Office of National Statistics)

Abstract

This paper presents a new model of endogenous wage and capital dispersion where heterogeneity is driven by entrepreneurial incentives to pay higher wages in order to attract and retain workers. The main contribution of this model is to provide a framework with microeconomic foundations that give rise to matching frictions, which can be used to understand the dynamic features of job-worker flows, wage dispersion and mobility as well as search on the job. The basic model is also extended to endogenise firms’ optimal investment in job-specific capital and search efforts undertaken by both employed and unemployed individuals. The empirical implications of this model are compared to those of the apparently more tractable and indeed, more frequently used aggregate matching technology. Existing differences turn out to be crucial for the empirical identification of the wage offer distribution and may also bias subsequent inferences about underlying search cost parameters.

Suggested Citation

  • Galindo-Rueda, Fernando, 2002. "Endogenous Wage and Capital Dispersion, On-the-Job Search and the Matching Technology," IZA Discussion Papers 625, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp625
    as

    Download full text from publisher

    File URL: https://docs.iza.org/dp625.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Kevin M. Murphy & Finis Welch, 1992. "The Structure of Wages," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(1), pages 285-326.
    2. Christopher A. Pissarides & Barbara Petrongolo, 2001. "Looking into the Black Box: A Survey of the Matching Function," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 390-431, June.
    3. Dale T. Mortensen, 1988. "Equilibrium Wage Distrihutions: A Synthesis," Discussion Papers 811, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    4. Bent Jesper Christensen & Rasmus Lentz & Dale T. Mortensen & George R. Neumann & Axel Werwatz, 2005. "On-the-Job Search and the Wage Distribution," Journal of Labor Economics, University of Chicago Press, vol. 23(1), pages 31-58, January.
    5. Bruce Fallick & Charles A. Fleischman, 2001. "The importance of employer-to-employer flows in the U.S. labor market," Finance and Economics Discussion Series 2001-18, Board of Governors of the Federal Reserve System (U.S.).
    6. Mark Doms & Timothy Dunne & Kenneth R. Troske, 1997. "Workers, Wages, and Technology," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(1), pages 253-290.
    7. C, Bontemps & Jean-Marc Robin & G, Van Den Berg, 1997. "Equilibrium Search with Productivity Dispersion : Theory and Estimation," Working Papers 97-09, Center for Research in Economics and Statistics.
    8. Amanda Gosling & Stephen Machin & Costas Meghir, 2000. "The Changing Distribution of Male Wages in the U.K," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 67(4), pages 635-666.
    9. Juhn, Chinhui & Murphy, Kevin M & Pierce, Brooks, 1993. "Wage Inequality and the Rise in Returns to Skill," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 410-442, June.
    10. Daron Acemoglu & Robert Shimer, 2000. "Wage and Technology Dispersion," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 67(4), pages 585-607.
    11. Harry J. Holzer & Lawrence F. Katz & Alan B. Krueger, 1991. "Job Queues and Wages," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(3), pages 739-768.
    12. Patricia M. Anderson & Simon M. Burgess, 2000. "Empirical Matching Functions: Estimation and Interpretation Using State-Level Data," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 93-102, February.
    13. Dale T. Mortensen, 2000. "Equilibrium Unemployment with Wage Posting: Burdett-Mortensen Meet Pissarides," Contributions to Economic Analysis, in: Panel Data and Structural Labour Market Models, pages 281-292, Emerald Group Publishing Limited.
    14. Mortensen, Dale & Pissarides, Christopher, 2011. "Job Creation and Job Destruction in the Theory of Unemployment," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 1-19.
    15. van den Berg, Gerard J, 1999. "Empirical Inference with Equilibrium Search Models of the Labour Market," Economic Journal, Royal Economic Society, vol. 109(456), pages 283-306, June.
    16. Stigler, George J., 2011. "Economics of Information," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 5, pages 35-49.
    17. Dale T. Mortensen, 2000. "Modeling Matched Job-Worker Flows," Econometric Society World Congress 2000 Contributed Papers 1493, Econometric Society.
    18. Burdett, Kenneth & Judd, Kenneth L, 1983. "Equilibrium Price Dispersion," Econometrica, Econometric Society, vol. 51(4), pages 955-969, July.
    19. repec:crs:wpaper:9709 is not listed on IDEAS
    20. Burdett, Kenneth & Mortensen, Dale T, 1998. "Wage Differentials, Employer Size, and Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 257-273, May.
    21. Mortensen, Dale T. & Pissarides, Christopher A., 1999. "New developments in models of search in the labor market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 39, pages 2567-2627, Elsevier.
    22. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
    23. Peters, Michael, 1991. "Ex Ante Price Offers in Matching Games Non-steady States," Econometrica, Econometric Society, vol. 59(5), pages 1425-1454, September.
    24. James D. Montgomery, 1991. "Equilibrium Wage Dispersion and Interindustry Wage Differentials," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(1), pages 163-179.
    25. Kevin Lang, 1991. "Persistent Wage Dispersion and Involuntary Unemployment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(1), pages 181-202.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. van den Berg, Gerard J. & van Vuuren, Aico, 2010. "The effect of search frictions on wages," Labour Economics, Elsevier, vol. 17(6), pages 875-885, December.
    2. Richard Rogerson & Robert Shimer & Randall Wright, 2004. "Search-Theoretic Models of the Labor Market-A Survey," NBER Working Papers 10655, National Bureau of Economic Research, Inc.
    3. Gerard J. van den Berg, 2003. "Multiple Equilibria and Minimum Wages in Labor Markets with Informational Frictions and Heterogeneous Production Technologies," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(4), pages 1337-1357, November.
    4. Ronald Wolthoff, 2010. "Applications and Interviews: A Structural Analysis of Two-Sided Simultaneous Search," 2010 Meeting Papers 114, Society for Economic Dynamics.
    5. J. Ignacio Garcia-Perez, 2002. "Equilibrium search models: the role of the assumptions," Investigaciones Economicas, Fundación SEPI, vol. 26(2), pages 255-284, May.
    6. Fitzenberger, Bernd & Garloff, Alfred, 2005. "Descriptive Evidence on Labor Market Transitions and the Wage Structure in Germany," ZEW Discussion Papers 05-95, ZEW - Leibniz Centre for European Economic Research.
    7. repec:jns:jbstat:v:227:y:2007:i:2:p:115-152 is not listed on IDEAS
    8. Garloff, Alfred, 2003. "Lohndispersion und Arbeitslosigkeit: Neuere Ansätze in der Suchtheorie," ZEW Discussion Papers 03-60, ZEW - Leibniz Centre for European Economic Research.
    9. 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.
    10. Manning, Alan, 2011. "Imperfect Competition in the Labor Market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 11, pages 973-1041, Elsevier.
    11. repec:hal:spmain:info:hdl:2441/dc0ckec3fcb29ms985085gkbp is not listed on IDEAS
    12. Andrey Launov & Christian Holzner, 2005. "Search Equilibrium, Production Parameters and Social Returns to Education: Theory and Estimation," 2005 Meeting Papers 604, Society for Economic Dynamics.
    13. Giovanni Sulis, 2008. "Wage Dispersion and Equilibrium Search Models: Some Evidence from Italy," LABOUR, CEIS, vol. 22(4), pages 593-627, December.
    14. Pissarides, Christopher A., 2015. "Dale Mortensen: An appreciation," Research in Economics, Elsevier, vol. 69(1), pages 1-6.
    15. Matteo Richiardi, 2004. "A Search Model Of Unemployment And Firm Dynamics," Advances in Complex Systems (ACS), World Scientific Publishing Co. Pte. Ltd., vol. 7(02), pages 203-221.
    16. Garloff Alfred & Fitzenberger Bernd, 2007. "Labor Market Transitions and the Wage Structure in Germany," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 227(2), pages 115-152, April.
    17. Gautier, Pieter A. & Moraga-González, José L., 2018. "Search intensity, wage dispersion and the minimum wage," Labour Economics, Elsevier, vol. 50(C), pages 80-86.
    18. Pieter A. Gautier & Jose L. Moraga, 2004. "Strategic Wage Setting and Coordination Frictions with Multiple Applications," Tinbergen Institute Discussion Papers 04-063/1, Tinbergen Institute, revised 16 Aug 2004.
    19. repec:hal:spmain:info:hdl:2441/c8dmi8nm4pdjkuc9g8grh35j2 is not listed on IDEAS
    20. Bemjamin Villena-Roldan, 2009. "Aggregate Implications of Employer Search and Recruiting Selection," 2009 Meeting Papers 97, Society for Economic Dynamics.
    21. Steven J. Davis & R. Jason Faberman & John C. Haltiwanger, 2013. "The Establishment-Level Behavior of Vacancies and Hiring," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 128(2), pages 581-622.
    22. Shapiro, Joel, 2004. "Income taxation in a frictional labor market," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 465-479, March.
    23. Galenianos, Manolis & Kircher, Philipp, 2009. "Directed search with multiple job applications," Journal of Economic Theory, Elsevier, vol. 144(2), pages 445-471, March.

    More about this item

    Keywords

    matching technology; wage posting; on-the-job search; micro-foundations; endogenous wage and capital distributions; empirical identification;
    All these keywords.

    JEL classification:

    • J39 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Other
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp625. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Holger Hinte (email available below). General contact details of provider: https://edirc.repec.org/data/izaaade.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.