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Alternative Theories of Wage Dispersion

Author

Listed:
  • Damien Gaumont

    (Universite Pantheon-Assas (Paris II))

  • Martin Schindler

    (International Monetary Fund)

  • Randall Wright

    (Department of Economics, University of Pennsylvania)

Abstract

We analyze labor market models where the law of one price does not hold; i.e., models with equilibrium wage dispersion. We begin assuming workers are ex ante heterogeneous, and highlight a flaw with this approach: if search is costly, the market shuts down. We then assume workers are homogeneous but matches are ex post heterogeneous. This model is robust to search costs, and delivers equilibria equilibrium wage dispersion. However, we prove the law of two prices holds: generically we cannot get more than two wages. We explore several other models, including one combining ex ante and ex post heterogeneity; this model is robust, and can deliver more than two-point wage distributions.

Suggested Citation

  • Damien Gaumont & Martin Schindler & Randall Wright, 2005. "Alternative Theories of Wage Dispersion," PIER Working Paper Archive 05-017, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  • Handle: RePEc:pen:papers:05-017
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    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Peter Ruppert & Elena Stancanelli & Etienne Wasmer, 2009. "Commuting, Wages and Bargaining Power," Annals of Economics and Statistics, GENES, issue 95-96, pages 201-220.
    2. Galenianos, Manolis & Kircher, Philipp, 2009. "Directed search with multiple job applications," Journal of Economic Theory, Elsevier, vol. 144(2), pages 445-471, March.
    3. James Albrecht & Fabien Postel‐Vinay & Susan Vroman, 2013. "An Equilibrium Search Model Of Synchronized Sales," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 54(2), pages 473-493, May.
    4. Cysne, Rubens Penha & Turchick, David, 2012. "Equilibrium unemployment-inequality correlation," Journal of Macroeconomics, Elsevier, vol. 34(2), pages 454-469.
    5. Carlos Carrillo‐Tudela & Guido Menzio & Eric Smith, 2011. "Job Search With Bidder Memories," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(3), pages 639-655, August.
    6. International Monetary Fund, 2006. "Equilibrium Wage Dispersion: An Example," IMF Working Papers 2006/019, International Monetary Fund.
    7. Menzio, Guido & Trachter, Nicholas, 2015. "Equilibrium price dispersion with sequential search," Journal of Economic Theory, Elsevier, vol. 160(C), pages 188-215.
    8. Subal Kumbhakar & Christopher Parmeter, 2009. "The effects of match uncertainty and bargaining on labor market outcomes: evidence from firm and worker specific estimates," Journal of Productivity Analysis, Springer, vol. 31(1), pages 1-14, February.
    9. Peter Rupert & Etienne Wasmer, 2009. "Housing and the Labor Market: Time to Move and Aggregate Unemployment," SciencePo Working papers hal-00972979, HAL.
    10. Gaumont, Damien & Schindler, Martin & Wright, Randall, 2006. "Alternative theories of wage dispersion," European Economic Review, Elsevier, vol. 50(4), pages 831-848, May.
    11. Philipp Kircher, 2009. "Efficiency of Simultaneous Search," Journal of Political Economy, University of Chicago Press, vol. 117(5), pages 861-913, October.
    12. Andreas Hornstein & Per Krusell & Giovanni L. Violante, 2011. "Frictional Wage Dispersion in Search Models: A Quantitative Assessment," American Economic Review, American Economic Association, vol. 101(7), pages 2873-2898, December.
    13. Guillaume Carlier & Damien Gaumont, 2008. "Fixed‐Wages, Wage Differentials And Worker Heterogeneities," Australian Economic Papers, Wiley Blackwell, vol. 47(4), pages 320-333, December.
    14. Yves Zenou, 2011. "Search, wage posting and urban spatial structure," Journal of Economic Geography, Oxford University Press, vol. 11(3), pages 387-416, May.
    15. Rupert, Peter & Wasmer, Etienne, 2012. "Housing and the labor market: Time to move and aggregate unemployment," Journal of Monetary Economics, Elsevier, vol. 59(1), pages 24-36.
    16. Jose A. Carrasco & Rodrigo Yañez, 2022. "Sequential search and firm prominence," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 74(1), pages 209-233, July.
    17. repec:spo:wpecon:info:hdl:2441/5l6uh8ogmqildh09h48256647 is not listed on IDEAS
    18. Rao, Neel, 2022. "Search equilibrium with unobservable investment," Games and Economic Behavior, Elsevier, vol. 133(C), pages 300-330.
    19. Gaumont Damien & Schindler Martin & Wright Randall, 2006. "Equilibrium Wage Dispersion: An Example," The B.E. Journal of Macroeconomics, De Gruyter, vol. 6(2), pages 1-18, October.
    20. Hornstein, Andreas & Krusell, Per & Violante, Giovanni L, 2006. "Frictional Wage Dispersion in Search Models: A Quantitative Approach," CEPR Discussion Papers 5935, C.E.P.R. Discussion Papers.
    21. Peter Rupert & Elena Stancanelli & Etienne Wasmer, 2009. "Commuting, Wages and Bargaining Power," SciencePo Working papers hal-00972825, HAL.
    22. repec:dau:papers:123456789/12856 is not listed on IDEAS
    23. repec:spo:wpecon:info:hdl:2441/10031 is not listed on IDEAS

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    More about this item

    Keywords

    wages; search; distributions;
    All these keywords.

    JEL classification:

    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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