Heterogeneity and the Distribution of Wages

V Bhaskar and Ted To

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: A number of theories (search and efficiency wages) have been developed, in part, to explain why identically able workers are often paid different wages. However, when there is a minimum wage, they do not explain the resulting "spike" in the wage distribution. Our model's predictions are consistent with this evidence. We assume that workers are equally able but have heterogeneous preferences for non-wage characteristics, while employers have heterogeneous productivity characteristics. This results in a model of labor market oligopsony where "inside" and "outside" forces interact, producing wage dispersion as well as a spike at the minimum wage.

Date: 1999
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Persistent link: https://EconPapers.repec.org/RePEc:wrk:warwec:530

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