IDEAS home Printed from https://ideas.repec.org/a/cup/macdyn/v22y2018i04p1001-1034_00.html
   My bibliography  Save this article

Inflation And Real Wage Dispersion: A Model Of Frictional Markets

Author

Listed:
  • Zhang, Min
  • Huangfu, Stella

Abstract

Current Population Survey (CPS) data over the period from 1994 to 2008 show that inflation has a positive effect on the residual wage dispersion. To explain this phenomenon, we introduce uncoordinated job searches into a general equilibrium monetary search framework. Our model shows that the uncoordinated job searches by unemployed workers give rise to an equilibrium, where a firm is matched with zero, one, or multiple job applicants. The ex post difference in matching probabilities generates a two-point wage dispersion among identical workers, when the Mortensen rule is implemented in the wage-determination process. In our model, inflation positively influences the wage dispersion directly through its impact on firm's real profit and indirectly through the effect of inflation that spills over from the goods market to the labor market. With reasonable parameter values, the calibrated model can account for most of the observed responses of residual wage dispersion to inflation.

Suggested Citation

  • Zhang, Min & Huangfu, Stella, 2018. "Inflation And Real Wage Dispersion: A Model Of Frictional Markets," Macroeconomic Dynamics, Cambridge University Press, vol. 22(4), pages 1001-1034, June.
    • Handle: RePEc:cup:macdyn:v:22:y:2018:i:04:p:1001-1034_00
    as

    Download full text from publisher

    File URL: https://www.cambridge.org/core/product/identifier/S1365100516000559/type/journal_article
    File Function: link to article abstract page
    Download Restriction: no
    ---><---

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cup:macdyn:v:22:y:2018:i:04:p:1001-1034_00. See general information about how to correct material in RePEc.

    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.

    We have no bibliographic references for this item. You can help adding them by using 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Kirk Stebbing (email available below). General contact details of provider: https://www.cambridge.org/mdy .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.