Search Costs and Wage Inequality

Jiancai Pi and Zhang Kaiqi ()
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Zhang Kaiqi: Department of Economics, Nanjing University, Nanjing, China

The B.E. Journal of Theoretical Economics, 2022, vol. 22, issue 1, 67-104

Abstract: This paper analyzes how search costs affect skilled-unskilled wage inequality. In the basic model, we find that an increase in skilled labor’s search costs will decrease wage inequality if the skilled labor market and the unskilled labor market are separated. In the extended model, our findings are as follows: (i) Even if there exists free entry into the unskilled labor market or the endogenous provision of public goods, an increase of search costs in the skilled labor market will decrease wage inequality; and (ii) if skilled search costs are negatively related to the skilled wage, wage inequality will be increased.

Keywords: search costs; endogenous search costs; skilled-unskilled wage inequality (search for similar items in EconPapers)
JEL-codes: J31 J64 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1515/bejte-2019-0168

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