Efficient Wage Dispersion
In market economies, identical workers receive very different wages, violating the Walrasian 'law of one price'. We argue that in the absence of a Walrasian auctioneer to coordinate trade, wage dispersion among identical workers is an equilibriu m phenomenon. Moreover, wage dispersion is necessary for an economy to function efficiently. In the absence of wage dispersion, workers have little incentive to gather information, effectively giving monopsony power to firms.
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|Date of creation:||1997|
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