A BEJM Topics article.

Abstract

Search models with wage posting and match-specific heterogeneity generate wage dispersion. Given K values for the match-specific variable, it is known that there are K reservation wages that could be posted, but generically never more than two actually are posted in equilibrium. What is unknown is when we get two wages, and which of the reservation wages are actually posted. For an example with K = 3, we show equilibrium is unique, may have one wage or two, and when there are two, the equilibrium can display any combination of posted reservation wages, depending on parameters. We also show how wages, profits and unemployment depend on productivity.

Submitted: May 23, 2006 · Accepted: September 15, 2006 · Published: October 3, 2006

Originally published in Topics in Macroeconomics.

Recommended Citation

Gaumont, Damien; Schindler, Martin; and Wright, Randall (2006) "Equilibrium Wage Dispersion: An Example," Topics in Macroeconomics: Vol. 6 : Iss. 2, Article 11.
Available at: http://www.bepress.com/bejm/topics/vol6/iss2/art11