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Residual Wage Disparity and Coordination Unemployment

Listed author(s):
  • Benoit Julien

    (Australian Graduate School of Managment)

  • John Kennes

    (Institute of Economics, University of Copenhagen)

  • Ian King

    (University of Auckland)

We ask: how much of the observed wage dispersion, among similar workers, can be explained by a lack of coordination among employers in their hiring practices?To answer this, we construct a directed search model with homogenous workers where firms can create either good or bad jobs, are uncoordinated with their job offers, and where on-the-job search is possible. Workers can exploit ex post opportunities when determining wages. The stationary equilibrium has both productivity dispersion - different wages due to different job qualities, and contract dispersion - different wages due to different market experiences for workers, and is constrained-efficient. Job arrival rates are endogenous and, as found in empirical studies, smaller for on-the-job searchers than for unemployed workers. We calibrate the model to the US economy and compare the implied statistics with those for empirical data. The equilibrium wage distribution is hump shaped, skewed significantly to the right, and, with baseline parameters, generates residual dispersion statistics 75-90% the size of those found empirically. However, the model overestimates the values of job finding rates and underestimates the average duration of unemployment.

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Paper provided by University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics in its series CAM Working Papers with number 2004-20.

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Length: 29 pages
Date of creation: Jun 2001
Date of revision: Nov 2004
Handle: RePEc:kud:kuieca:2004_20
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