Frictional wage dispersion with Bertrand competition: an assessment

Tamas Papp
Additional contact information
Tamas Papp: Institute for Advanced Studies

Review of Economic Dynamics, 2013, vol. 16, issue 3, 540-552

Abstract: I examine whether a version of the Cahuc et al. (2006) model can match the magnitude of wage dispersion, as measured by the ratio of the average and the lowest wage - the so-called mean-min ratio of Hornstein et al. (2011). I find that the workers' bargaining power is a crucial parameter: the mean-min ratio strictly decreases in the bargaining power up to a point near 1/2 and is essentially flat thereafter, generating the same amount of wage dispersion as the canonical wage ladder model, which is a special case of the CPVR model. Consequently, this model can yield large wage dispersion only for low bargaining power on the workers' side. I show that the share of job-to-job transitions with wage drops is decreasing in the bargaining power, calibrate the latter to the former, and demonstrate that the CPVR model generates an empirically plausible amount of wage dispersion. I also show that negative wages arise when workers have no bargaining power, and discuss the implications for the empirical findings of Postel-Vinay and Robin (2002b). (Copyright: Elsevier)

Keywords: Wage dispersion; Mean-min ratio; Frictions; Labor market (search for similar items in EconPapers)
JEL-codes: E24 J24 J31 J6 J64 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Downloads: (external link)
http://dx.doi.org/10.1016/j.red.2013.02.002
Access to full texts is restricted to ScienceDirect subscribers and institutional members. See http://www.sciencedirect.com/ for details.

Related works:
Software Item: Code and data files for "Frictional wage dispersion with Bertrand competition: an assessment" (2013)
Working Paper: Online Appendix to "Frictional wage dispersion with Bertrand competition: an assessment" (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:red:issued:09-187

Ordering information: This journal article can be ordered from
https://www.economic ... ription-information/

DOI: 10.1010/j.red.2013.02.002

Access Statistics for this article

Review of Economic Dynamics is currently edited by Loukas Karabarbounis

More articles in Review of Economic Dynamics from Elsevier for the Society for Economic Dynamics Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().