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

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  • 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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    References listed on IDEAS

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    1. A. Kerem Co?ar & Nezih Guner & James Tybout, 2016. "Firm Dynamics, Job Turnover, and Wage Distributions in an Open Economy," American Economic Review, American Economic Association, vol. 106(3), pages 625-663, March.
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    5. 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.
    6. Cheng Wang & Youzhi Yang, 2023. "On the Pure Theory of Wage Dispersion," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 47, pages 246-277, January.
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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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