The Role of Headhunters in Wage Inequality: It's All about Matching

Alexey Gorn

Review of Economic Dynamics, 2021, vol. 40, 309-346

Abstract: This study relates the increase in the U.S. top wages to the increasing prominence of headhunters. Headhunters improve the matching between firms and employees via two channels: screening of candidates and passive on-the-job search. I incorporate headhunters in the labor market framework of random search with two-sided heterogeneity. The calibrated model shows that headhunters can account for 32% of the increase in the top 10% wage share in the U.S. from 1970 to 2010, with 19% due to improvements in matching between workers and firms. I provide supporting micro evidence for CEO compensation, as well as cross-country evidence on headhunter hires/fees and top income growth. (Copyright: Elsevier)

Keywords: Wage distribution; Top incomes; Sorting; On-the-job search; Headhunters (search for similar items in EconPapers)
JEL-codes: C78 D83 E24 J24 J62 J63 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.red.2020.10.006

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