Wage Dispersion and Wage Dynamics within and Across Firms

34 Pages Posted: 2 Mar 2009

See all articles by Carlos Carrillo-Tudela

Carlos Carrillo-Tudela

University of Leicester; IZA Institute of Labor Economics

Eric Smith

University of Essex - Department of Economics

Abstract

This paper examines wage dispersion and wage dynamics in a stock-flow matching economy with on-the-job search. Under stock-flow matching, job seekers immediately become fully informed about the stock of viable vacancies. If only one option is available, monopsony wages result. With more than one firm bidding, Bertrand wages arise. The initial and expected threat of competition determines the evolution of wages and thereby introduces a novel way of understanding wage differences among similar workers. The resulting wage distribution has an interior mode and prominent, well-behaved tails. The model also generates job-to-job transitions with both wage cuts and jumps.

Keywords: wage dispersion, wage dynamics, job search, stock-flow matching

JEL Classification: J31, J63, J64

Suggested Citation

Carrillo-Tudela, Carlos and Smith, Eric, Wage Dispersion and Wage Dynamics within and Across Firms. IZA Discussion Paper No. 4031. Available at SSRN: https://ssrn.com/abstract=1351194

Carlos Carrillo-Tudela (Contact Author)

University of Leicester ( email )

University Road
Leicester, LE1 7RH
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Eric Smith

University of Essex - Department of Economics ( email )

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom

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