Equilibrium Wage Dispersion: An Example

16 Pages Posted: 3 Mar 2006

See all articles by Damien Gaumont

Damien Gaumont

Université Paris II Pantheon-Assas

Martin Schindler

International Monetary Fund (IMF)

Randall Wright

University of Wisconsin - Madison - Department of Finance, Investment and Banking; Federal Reserve Banks - Federal Reserve Bank of Minneapolis

Date Written: January 2006

Abstract

Search models with 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 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.

Keywords: Search equilibrium, wage posting, wage dispersion, labor theory

JEL Classification: D83, E24, J31, J63

Suggested Citation

Gaumont, Damien and Schindler, Martin and Wright, Randall D., Equilibrium Wage Dispersion: An Example (January 2006). IMF Working Paper No. 06/19, Available at SSRN: https://ssrn.com/abstract=888164

Damien Gaumont (Contact Author)

Université Paris II Pantheon-Assas ( email )

35, ave. MacMahon
75017 Paris, 75006
France

Martin Schindler

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Randall D. Wright

University of Wisconsin - Madison - Department of Finance, Investment and Banking ( email )

975 University Avenue
Madison, WI 53706
United States
608-263-3860 (Phone)

Federal Reserve Banks - Federal Reserve Bank of Minneapolis

90 Hennepin Avenue
Minneapolis, MN 55480
United States

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