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Equilibrium Wage Dispersion: An Example

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  • International Monetary Fund

Abstract

Search models with posting and match-specific heterogeneity generate wage dispersion. Given K values for the match-specific variable, it is known that there are K reservation wages that could be posted, but generically never more than two actually are posted in equilibrium. What is unknown is when we get two wages, and which wages are actually posted. For an example with K = 3, we show equilibrium is unique; may have one wage or two; and when there are two, the equilibrium can display any combination of posted reservation wages, depending on parameters. We also show how wages, profits, and unemployment depend on productivity.

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  • International Monetary Fund, 2006. "Equilibrium Wage Dispersion: An Example," IMF Working Papers 2006/019, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2006/019
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    1. Richard Rogerson & Robert Shimer & Randall Wright, 2004. "Search-Theoretic Models of the Labor Market-A Survey," NBER Working Papers 10655, National Bureau of Economic Research, Inc.
    2. Damien Gaumont & Martin Schindler & Randall Wright, 2006. "Alternative Theories of Wage Dispersion," Contributions to Economic Analysis, in: Structural Models of Wage and Employment Dynamics, pages 61-82, Emerald Group Publishing Limited.
    3. 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.
    4. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
    5. Curtis, Elisabeth & Wright, Randall, 2004. "Price setting, price dispersion, and the value of money: or, the law of two prices," Journal of Monetary Economics, Elsevier, vol. 51(8), pages 1599-1621, November.
    6. International Monetary Fund, 2005. "Alternative Models of Wage Dispersion," IMF Working Papers 2005/064, International Monetary Fund.
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    Cited by:

    1. Peter Ruppert & Elena Stancanelli & Etienne Wasmer, 2009. "Commuting, Wages and Bargaining Power," Annals of Economics and Statistics, GENES, issue 95-96, pages 201-220.
    2. Gaumont, Damien & Schindler, Martin & Wright, Randall, 2006. "Alternative theories of wage dispersion," European Economic Review, Elsevier, vol. 50(4), pages 831-848, May.

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