IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/8434.html
   My bibliography  Save this paper

The Quality Distribution of Jobs and the Structure of Wages in Search Equilibrium

Author

Listed:
  • Steven J. Davis

Abstract

When match formation is costly and wage determination is decentralized, privately optimal investments in job and worker quality diverge from socially efficient outcomes. To explore this issue, I consider search equilibrium environments with endogenous quality distributions for jobs and workers. I show that a search equilibrium with decentralized wage setting exhibits excessive relative supplies of inferior jobs and inferior workers. Moreover, there are fundamental tensions between the standard wage-setting condition for an efficient total supply of jobs (and workers) in two-sided search models and the conditions required for efficient mixes of jobs and workers. I also derive the efficient wage structure, contrast its properties to the decentralized wage structure and evaluate the welfare and productivity gains of moving to an efficient wage structure. Numerical exercises show that centralized bargaining between a labor union and an employer confederation over the structure of wages can improve productivity and welfare by compressing job-related wage differentials.

Suggested Citation

  • Steven J. Davis, 2001. "The Quality Distribution of Jobs and the Structure of Wages in Search Equilibrium," NBER Working Papers 8434, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:8434
    Note: EFG LS
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w8434.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Dale T. Mortensen, 1982. "The Matching Process as a Noncooperative Bargaining Game," NBER Chapters, in: The Economics of Information and Uncertainty, pages 233-258, National Bureau of Economic Research, Inc.
    2. Lars Ljungqvist & Thomas J. Sargent, 2004. "Recursive Macroeconomic Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 026212274x.
    3. Davis, Steven J. & Henrekson, Magnus, 2005. "Wage-setting institutions as industrial policy," Labour Economics, Elsevier, vol. 12(3), pages 345-377, June.
    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. Giat, Yahel & Subramanian, Ajay, 2013. "Dynamic contracting under imperfect public information and asymmetric beliefs," Journal of Economic Dynamics and Control, Elsevier, vol. 37(12), pages 2833-2861.
    2. Xavier Raurich & Thomas Seegmuller, 2017. "Growth and Bubbles: The Interplay between Productive Investment and the Cost of Rearing Children," Working Papers halshs-01563555, HAL.
    3. Bruche, Max & Segura, Anatoli, 2017. "Debt maturity and the liquidity of secondary debt markets," Journal of Financial Economics, Elsevier, vol. 124(3), pages 599-613.
    4. Feigenbaum, James, 2008. "Can mortality risk explain the consumption hump?," Journal of Macroeconomics, Elsevier, vol. 30(3), pages 844-872, September.
    5. Bora Durdu & Enrique G. Mendoza, 2004. "Putting the brakes on Sudden Stops: the financial frictions - moral hazard tradeoff of asset price guarantees," Proceedings, Federal Reserve Bank of San Francisco, issue Jun.
    6. Grochulski, Borys & Zhang, Yuzhe, 2011. "Optimal risk sharing and borrowing constraints in a continuous-time model with limited commitment," Journal of Economic Theory, Elsevier, vol. 146(6), pages 2356-2388.
    7. Bonatti, Luigi, 2002. "The effects of wage compression on unemployment and on the intersectoral distribution of employment: a dynamic model," Economic Systems, Elsevier, vol. 26(2), pages 127-144, June.
    8. Tan Wang & Tony S. Wirjanto, 2016. "Risk Aversion, Uncertainty, Unemployment Insurance Benefit and Duration of "Wait" Unemployment," Annals of Economics and Finance, Society for AEF, vol. 17(1), pages 1-34, May.
    9. Piero Gottardi & Atsushi Kajii & Tomoyuki Nakajima, 2015. "Optimal Taxation and Debt with Uninsurable Risks to Human Capital Accumulation," American Economic Review, American Economic Association, vol. 105(11), pages 3443-3470, November.
    10. Lars Ljungqvist, 2002. "How Do Lay--off Costs Affect Employment?," Economic Journal, Royal Economic Society, vol. 112(482), pages 829-853, October.
    11. Espino, Emilio & González Rozada, Martín, 2013. "Normative Fiscal Policy and Growth: Some Quantitative Implications for the Chilean Economy," IDB Publications (Working Papers) 4648, Inter-American Development Bank.
    12. Aaron Schiff & Martin Browning & John Kennes, 2005. "Lots of Heterogeneity in a Matching Model," 2005 Meeting Papers 799, Society for Economic Dynamics.
    13. Marvin Goodfriend, 2004. "Monetary policy in the new neoclassical synthesis : a primer," Economic Quarterly, Federal Reserve Bank of Richmond, vol. 90(Sum), pages 21-45.
    14. Salyer, Kevin D., 2007. "Macroeconomic priorities and crash states," Economics Letters, Elsevier, vol. 94(1), pages 64-70, January.
    15. Gordon, Robert J, 1982. "Why U.S. Wage and Employment Behaviour Differs from That in Britain and Japan," Economic Journal, Royal Economic Society, vol. 92(365), pages 13-44, March.
    16. Shouqiang Wang & Peng Sun & Francis de Véricourt, 2016. "Inducing Environmental Disclosures: A Dynamic Mechanism Design Approach," Operations Research, INFORMS, vol. 64(2), pages 371-389, April.
    17. Miao, Jianjun & Zhang, Yuzhe, 2015. "A duality approach to continuous-time contracting problems with limited commitment," Journal of Economic Theory, Elsevier, vol. 159(PB), pages 929-988.
    18. Eleni Iliopulos & François Langot & Thepthida Sopraseuth, 2019. "Welfare Cost of Fluctuations When Labor Market Search Interacts with Financial Frictions," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 51(8), pages 2207-2237, December.
    19. Mikhail Golosov & Aleh Tsyvinski, 2007. "Optimal Taxation with Endogenous Insurance Markets," The Quarterly Journal of Economics, Oxford University Press, vol. 122(2), pages 487-534.
    20. Matthew Baker & Thomas Miceli, 2005. "Credible Criminal Enforcement," European Journal of Law and Economics, Springer, vol. 20(1), pages 5-15, July.

    More about this item

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

    NEP fields

    This paper has been announced in the following NEP Reports:

    Lists

    This item is featured on the following reading lists, Wikipedia, or ReplicationWiki pages:
    1. Recursive Macroeconomic Theory

    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:nbr:nberwo:8434. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    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: (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.