The Macrodynamics of the Wage Distribution

Jeremy Lise, Jean-Marc Robin and Rasmus Lentz
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Rasmus Lentz: University of Wisconsin Madison

No 1220, 2017 Meeting Papers from Society for Economic Dynamics

Abstract: Abstract We develop a tractable model of the evolution of the wage distribution, extending Lise and Robin (2017, LR). Building on results in LR, we provide a fully closed form solution for the evolution of the wage distribution within a class of random search models that feature ex-ante heterogeneity of workers and firms, productivity shocks, and endogenous job creation and destruction. The model has interesting implications for the cyclicality of wages since the flow productivity (and home production) affect the wage positively while the continuation value affect the wage negatively. As a result, wages may be pro-, counter- or a-cyclical depending on the worker's bargaining power and the quantitative estimates of the relative contribution of the flow and continuation value to current wages. Structural estimation of the model using matched employer-employee data is currently in progress.

Date: 2017
New Economics Papers: this item is included in nep-dge
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed017:1220

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