University of Auckland
Equilibrium Wage Dispersion
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We construct a directed search model with homogeneous workers, where firms can choose to produce either good jobs or bad jobs. Good jobs have higher productivity than bad jobs, but are also more costly to produce. Under quite general conditions, both good and bad jobs exist in equilibrium, and workers in good jobs are paid more than those in bad jobs. Thus, equilibrium wage dispersion, among homogeneous workers, arises quite naturally. Moreover, in large markets, the equilibrium is constrained-efficient if and only if workers are sellers of labor, rather than buyers of jobs. We then calibrate a dynamic version of the model and quantify two different sources of wage dispersion: productivity dispersion (due to differing job qualities) and contract dispersion (due to differing numbers of bidders for workers).
PDF file of paper: Not available.
Session: Economic Theory
Time: Friday, 6 July, 8:45am - 10:15am