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Frictional Wage Inequality: A Puzzle?


  • Andreas Hornstein
  • GianLuca Violante

    () (Department of Economics New York University)

  • Per Krusell


In this paper we document that "frictional wage inequality" (i.e. due to pure luck in the matching process in the labor market) is large and that both the standard McCall search model and the simplest Diamond-Mortensen-Pissarides matching model, reasonably calibrated, are strikingly unable to generate the amount of dispersion observed in the data. Next, we discuss some extensions of the model that do not work (e.g. risk-aversion) and others that are more promising (e.g. on-the-job search and heterogeneity in the value of leisure)

Suggested Citation

  • Andreas Hornstein & GianLuca Violante & Per Krusell, 2006. "Frictional Wage Inequality: A Puzzle?," 2006 Meeting Papers 7, Society for Economic Dynamics.
  • Handle: RePEc:red:sed006:7

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    More about this item


    wage inequality; search;

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials


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