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

Weichao Zhu, Xiao Yun and Huimei Yang

Finance Research Letters, 2024, vol. 62, issue PB

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.

Keywords: Financial frictions; Wage dispersion; Search models; Structural estimation (search for similar items in EconPapers)
JEL-codes: E22 E24 G14 J31 J64 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:62:y:2024:i:pb:s1544612324002472

DOI: 10.1016/j.frl.2024.105217

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