Residual wage disparity and coordination unemployment
Julien, Benoît; Kennes, John; King, Ian
How much of residual wage dispersion can be explained by an absence of coordination among firms? To answer, we construct a dynamic directed search model with identical workers where firms can create high or low productivity jobs and are uncoordinated in their offers to workers, calibrated to the US economy. Workers can exploit ex post opportunities once approached by firms, and can conduct on-the-job search. The stationary equilibrium wage distribution is hump-shaped, skewed significantly to the right and, with baseline parameters, generates residual dispersion statistics 75-90% of those found empirically. However, the model underestimates the the average duration of unemployment.
Publisher: University of Otago
Series number: 527
Keywords: wage dispersion; directed search; matching
Research Type: Discussion Paper