Wage Dispersion In The Search And Matching Model With Intra Firm Bargaining
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| Author | : Dale T. Mortensen |
| Publisher | : |
| Total Pages | : 0 |
| Release | : 2009 |
| Genre | : Labor market |
| ISBN | : |
Matched employer-employee data exhibits both wage and productivity dispersion across firms and suggest that a linear relationship holds between the average wage paid and a firm productivity. The purpose of this paper is to demonstrate that these facts can be explained by a search and matching model when firms are heterogenous with respect to productivity, are composed of many workers, and face diminishing returns to labor given the wage paid to identical workers is the solution to the Stole-Zwiebel bilateral bargaining problem. Helpman and Iskhoki (2008) show that a unique single wage (degenerate) equilibrium solution to the model exists in this environment. In this paper, I demonstrate that another equilibrium exists that can be characterized by a non-degenerate distribution of wages in which more productive firms pay more if employed workers are able to search. Generically this dispersed wage equilibrium is unique and exists if and only if firms are heterogenous with respect to factor productivity. Finally, employment is lower in the dispersed wage equilibrium than in the single wage equilibrium but this fact does not imply that welfare is higher in the single wage equilibrium.
| Author | : Pierre Cahuc |
| Publisher | : |
| Total Pages | : 0 |
| Release | : 2008 |
| Genre | : |
| ISBN | : |
This article provides a model of labor market equilibrium with search and within-firm strategic bargaining. We yield explicit closed form solutions with heterogeneous labor inputs and capital. The solution exhibits overemployment. We show that higher relative bargaining power for some groups of workers may lead to overemployment relative to other groups, with such other groups being underemployed instead if they have a lower relative bargaining power. Similarly, the hold-up problem between capitalists and employees does not necessarily lead to underinvestment in physical capital.
| Author | : Dale Mortensen |
| Publisher | : MIT Press |
| Total Pages | : 170 |
| Release | : 2003 |
| Genre | : Business & Economics |
| ISBN | : 9780262633192 |
A theoretical and empirical examination of wage differentials findsthat traditional theories of competition do not explain why workers with identical skills are paid differently.
| Author | : |
| Publisher | : |
| Total Pages | : |
| Release | : 2007 |
| Genre | : Unemployment |
| ISBN | : |
Standard search and matching models of equilibrium unemployment, once properly calibrated, can generate only a small amount of frictional wage dispersion, i.e., wage differentials among ex-ante similar workers induced purely by search frictions. We derive this result for a specific measure of wage dispersion -- the ratio between the average wage and the lowest (reservation) wage paid. We show that in a large class of search and matching models this statistic (the "mean-min ratio") can be obtained in closed form as a function of observable variables (i.e., the interest rate, the value of leisure, and statistics of labor market turnover). Various independent data sources suggest that actual residual wage dispersion (i.e., inequality among observationally similar workers) exceeds the model's prediction by a factor of 20. We discuss three extensions of the model (risk aversion, volatile wages during employment, and on-the-job search) and find that, in their simplest versions, they can improve its performance, but only modestly. We conclude that either frictions account for a tiny fraction of residual wage dispersion, or the standard model needs to be augmented to confront the data. In particular, the last generation of models with on-the-job search appears promising.
| Author | : Damien Gaumont |
| Publisher | : International Monetary Fund |
| Total Pages | : 30 |
| Release | : 2005 |
| Genre | : Labor market |
| ISBN | : |
We analyze labor market models where the law of one price does not hold-that is, models with equilibrium wage dispersion. We begin by assuming workers are ex ante heterogeneous, and highlight a flaw with this approach: if search is costly, the market shuts down. We then assume workers are homogeneous, but matches are ex post heterogeneous. This model is robust to search costs, and it delivers equilibrium wage dispersion. However, we prove the law of two prices holds: generically, we cannot get more than two wages. We explore several other models, including one combining ex ante and ex post heterogeneity, which is robust and can deliver more than two-point wage distributions.
| Author | : Andreas Hornstein |
| Publisher | : |
| Total Pages | : |
| Release | : 2006 |
| Genre | : |
| ISBN | : |
"Standard search and matching models of equilibrium unemployment, once prop- erly calibrated, can generate only a small amount of frictional wage dispersion, i.e., wage di erentials among ex-ante similar workers induced purely by search frictions. We derive this result for a speci c measure of wage dispersion the ratio between the average wage and the lowest (reservation) wage paid. We show that in a large class of search and matching models this statistic ("the mean-min ratio") can be obtained in closed form as a function of observable variables (i.e., interest rate, value of leisure, and statistics of labor market turnover). Looking at various independent data sources suggests that, empirically, residual wage dispersion (i.e., inequality among observationally similar workers) exceeds the model's prediction by a factor of 20. We discuss three extensions of the model (risk aversion, volatile wages during employment, and on-the-job search) and nd that, in their simplest version, they can improve its performance, but only modestly. We conclude that either frictions account for a tiny fraction of residual wage dispersion, or the standard model needs to be augmented to confront the data."--Federal Reserve Bank of Richmond web site.
| Author | : Fernando Galindo-Rueda |
| Publisher | : |
| Total Pages | : 40 |
| Release | : 2002 |
| Genre | : |
| ISBN | : |
| Author | : Jesper Bagger |
| Publisher | : |
| Total Pages | : 0 |
| Release | : 2014 |
| Genre | : Economics |
| ISBN | : |
This paper studies wage dispersion in an equilibrium on-the-job-search model with endogenous search intensity. Workers differ in their permanent skill level and firms differ with respect to productivity. Positive (negative) sorting results if the match production function is supermodular (submodular). The model is estimated on Danish matched employer-employee data. We find evidence of positive assortative matching. In the estimated equilibrium match distribution, the correlation between worker skill and firm productivity is 0.12. The assortative matching has a substantial impact on wage dispersion. We decompose wage variation into four sources: Worker heterogeneity, firm heterogeneity, frictions, and sorting. Worker heterogeneity contributes 51% of the variation, firm heterogeneity contributes 11%, frictions 23%, and finally sorting contributes 15%. We measure the output loss due to mismatch by asking how much greater output would be if the estimated population of matches were perfectly positively assorted. In this case, output would increase by 7.7%.
| Author | : Anton Cheremukhin |
| Publisher | : |
| Total Pages | : 0 |
| Release | : 2022 |
| Genre | : |
| ISBN | : |
When setting initial compensation, some firms set a fixed, non-negotiable wage while others bargain. In this paper we propose a parsimonious search and matching model with two sided heterogeneity, where the choice of wage-setting protocol, wages, search intensity, and degree of randomness in matching are endogenous. We find that posting and bargaining coexist as wage-setting protocols if there is sufficient heterogeneity in match quality, search costs, or market tightness and that labor market tightness and relative costs of search play a key role in the choice of the wage-setting mechanism. We validate the model and find that bargaining prevalence is positively correlated with wages, residual wage dispersion, and labor market tightness, both in the model and in the data. We find coexistence of wage setting protocols arises from miscoordiation among firms and may lead to large welfare losses. It is precisely in these cases that a policy of mandatory wage posting tends to further reduce welfare.
| Author | : Kazuhiro Teramoto |
| Publisher | : |
| Total Pages | : 0 |
| Release | : 2022 |
| Genre | : |
| ISBN | : |
I propose a new search-and-matching model in which wage rigidity and volatile unemployment endogenously arise. The Diamond-Mortensen-Pissarides model is generalized by incorporating job-ladder and vacancy-chain effects arising from on-the-job search and replacement hiring into a long-lived jobs framework. The presence of replacement hiring (i) enhances unemployment volatility by reducing crowding out of unemployed workers due to employed searchers and (ii) makes equilibrium wages less responsive to productivity fluctuations by increasing procyclicality of the firm's outside option value in wage negotiations--during expansions, firms have increased chances to replace a poorly-matched worker with a better-matched worker.
