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Financial frictions and inter-firm wage dispersion: A structural estimation

Author

Listed:
  • Zhu, Weichao
  • Yun, Xiao
  • Yang, Huimei

Abstract

Based on the stylized facts about financial frictions, this paper proposes a general equilibrium model to show that firms can transmit heterogeneous financial costs to workers through wage-bargaining in the labor market with search frictions. In the equilibrium, both financial frictions and search frictions induce inter-firm wage dispersion. Structural estimation indicates that the model accounts for 34–77% of the observed wage dispersion, in which a sizable share is attributable to financial frictions. The bargaining power and market power are important for the cost-transformation process.

Suggested Citation

  • Zhu, Weichao & Yun, Xiao & Yang, Huimei, 2024. "Financial frictions and inter-firm wage dispersion: A structural estimation," Finance Research Letters, Elsevier, vol. 62(PB).
    • Handle: RePEc:eee:finlet:v:62:y:2024:i:pb:s1544612324002472
    DOI: 10.1016/j.frl.2024.105217
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    More about this item

    Keywords

    Financial frictions; Wage dispersion; Search models; Structural estimation;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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