On the Pure Theory of Wage Dispersion

Cheng Wang and Youzhi Yang ()

Review of Economic Dynamics, 2023, vol. 47, 246-277

Abstract: We study an equilibrium model of the labor market with identical firms and homogeneous workers, and with search and on-the-job search. Jobs are dynamic contracts that allow firms to match the worker's outside offers or let the job be terminated. For a non-degenerate distribution of wage offers to arise in the environment, it is necessary and sufficient that (i) there is a positive cost of job turnover, in terminating an existing job or posting a new one; and (ii) there is asymmetric information regarding the worker's outside offers. The model is calibrated to the U.S. labor market to match observed worker flows and the observed mean-min ratio in wages earned. The calibrated model predicts a unimodal distribution for both wages offered and wages earned. (Copyright: Elsevier)

Keywords: Wage dispersion; Search; On-the-job search; Dynamic contracting (search for similar items in EconPapers)
JEL-codes: D86 E24 J63 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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DOI: 10.1016/j.red.2022.02.003

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