IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Equilibrium Wage Dispersion with Worker and Employer Heterogeneity

Listed author(s):
  • Fabien Postel-Vinay
  • Jean-Marc Robin

We consider an equilibrium search model with on-the-job search where Þrms set wages. If employers are perfectly aware of all workers job opportunities, then when an employee receives an outside job offer, it is optimal for their employer to try to retain them by matching the offer, so long as the resulting wage doesnt exceed the worker.s productivity. A Bertrand competition is thus triggered between the incumbent employer and the.poacher., which results in a wage increase for the worker. However, if workers are able to vary their search intensity, then this offer-matching policy runs into a moral hazard problem. Knowing that outside offers lead to wage increases, workers are induced to search more intensively, which is costly for the Þrms. Assuming that Þrms can commit never to match outside offers, we examine the set of Þrm types for which it is preferable to do so. We derive sufficient conditions for the equilibrium to be of the sort all Þrms match or no Þrm matches. Finally, computed examples show that, even though virtually any situation can be observed in equilibrium when the sufficient conditions are not met, a plausible pattern is one where a dual labor market emerges, with bad jobs at low-porductivity, nomatching arms and good jobs at high-poductiviy, matching arms.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://spire.sciencespo.fr/hdl:/2441/c8dmi8nm4pdjkuc9g8grh35j2/resources/to-march-or-not-match.pdf
Download Restriction: no

Paper provided by Sciences Po in its series Sciences Po publications with number info:hdl:2441/c8dmi8nm4pdjkuc9g8grh35j2.

as
in new window

Length:
Date of creation: 2002
Publication status: Published in Econometrica, 2002, vol. 70, pp.2295-2350
Handle: RePEc:spo:wpmain:info:hdl:2441/c8dmi8nm4pdjkuc9g8grh35j2
Contact details of provider: Web page: http://www.sciencespo.fr/

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as
in new window


  1. Fabien Postel-Vinay & Jean-Marc Robin, 2002. "The Distribution of Earnings in an Equilibrium Search Model with State-Dependent Offers and Counteroffers," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(4), pages 989-1016, November.
  2. Mortensen, Dale & Pissarides, Christopher, 2011. "Job Creation and Job Destruction in the Theory of Unemployment," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 1-19.
  3. Bontemps, Christian & Robin, Jean-Marc & van den Berg, Gerard J, 2000. "Equilibrium Search with Continuous Productivity Dispersion: Theory and Nonparametric Estimation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(2), pages 305-358, May.
  4. John M. Abowd & Francis Kramarz & David N. Margolis, 1999. "High Wage Workers and High Wage Firms," Econometrica, Econometric Society, vol. 67(2), pages 251-334, March.
  5. Mortensen, D. T. & Vishwanath, T., 1995. "Personal contacts and earnings: It is who you know!," Labour Economics, Elsevier, vol. 2(1), pages 103-104, March.
  6. Heckman, James J & Honore, Bo E, 1990. "The Empirical Content of the Roy Model," Econometrica, Econometric Society, vol. 58(5), pages 1121-1149, September.
  7. Bontemps, Christian & Robin, Jean-Marc & Van den Berg, Gerard J, 1999. "An Empirical Equilibrium Job Search Model with Search on the Job and Heterogeneous Workers and Firms," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 1039-1074, November.
  8. Dale T. Mortensen, 2000. "Modeling Matched Job-Worker Flows," Econometric Society World Congress 2000 Contributed Papers 1493, Econometric Society.
  9. Ken Burdett & Randall Wright, 1998. "Two-Sided Search with Nontransferable Utility," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(1), pages 220-245, January.
  10. Matthew S. Dey & Christopher J. Flinn, 2005. "An Equilibrium Model of Health Insurance Provision and Wage Determination," Econometrica, Econometric Society, vol. 73(2), pages 571-627, 03.
  11. Gerard J. van den Berg & Geert Ridder, 1998. "An Empirical Equilibrium Search Model of the Labor Market," Econometrica, Econometric Society, vol. 66(5), pages 1183-1222, September.
  12. Fabien Postel-Vinay & Jean-Marc Robin, 2002. "Equilibrium Wage Dispersion with Worker and Employer Heterogeneity," Econometrica, Econometric Society, vol. 70(6), pages 2295-2350, November.
  13. Burdett, Kenneth & Judd, Kenneth L, 1983. "Equilibrium Price Dispersion," Econometrica, Econometric Society, vol. 51(4), pages 955-969, July.
  14. James Heckman & Jose Scheinkman, 1987. "The Importance of Bundling in a Gorman-Lancaster Model of Earnings," Review of Economic Studies, Oxford University Press, vol. 54(2), pages 243-255.
  15. Burdett, Kenneth & Mortensen, Dale T, 1998. "Wage Differentials, Employer Size, and Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 257-273, May.
  16. Albrecht, James W & Axell, Bo, 1984. "An Equilibrium Model of Search Unemployment," Journal of Political Economy, University of Chicago Press, vol. 92(5), pages 824-840, October.
  17. Mortensen, Dale T. & Pissarides, Christopher A., 1999. "New developments in models of search in the labor market," Handbook of Labor Economics,in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 39, pages 2567-2627 Elsevier.
  18. Acemoglu, D. & Shimer, R., 1997. "Efficient Wage Dispersion," Working papers 97-25, Massachusetts Institute of Technology (MIT), Department of Economics.
  19. Jean-Marc Robin & Sébastien Roux_, 1998. "Random or Balanced Matching : An Equilibrium Search Model with Endogenous Capital and Two-Sided Search," Working Papers 98-38, Center for Research in Economics and Statistics.
  20. Giuseppe Moscarini, 2001. "Excess Worker Reallocation," Review of Economic Studies, Oxford University Press, vol. 68(3), pages 593-612.
  21. Topel, Robert H, 1991. "Specific Capital, Mobility, and Wages: Wages Rise with Job Seniority," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 145-176, February.
  22. repec:adr:anecst:y:2002:i:67-68:p:11 is not listed on IDEAS
  23. A. D. Roy, 1951. "Some Thoughts On The Distribution Of Earnings," Oxford Economic Papers, Oxford University Press, vol. 3(2), pages 135-146.
  24. Mortensen, D.T., 1998. "Equilibrium Unemployment with Wage Posting: Burdett-Mortensen Meet Pissarides," Papers 98-14, Centre for Labour Market and Social Research, Danmark-.
  25. Burdett, Kenneth & Vishwanath, Tara, 1988. "Balanced Matching and Labor Market Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 96(5), pages 1048-1065, October.
  26. Heckman, James J & Sedlacek, Guilherme, 1985. "Heterogeneity, Aggregation, and Market Wage Functions: An Empirical Model of Self-selection in the Labor Market," Journal of Political Economy, University of Chicago Press, vol. 93(6), pages 1077-1125, December.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:spo:wpmain:info:hdl:2441/c8dmi8nm4pdjkuc9g8grh35j2. 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: (Spire @ Sciences Po Library)

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.