Equilibrium Wage Dispersion and Interindustry Wage Differentials

Montgomery, James D.

doi:10.2307/2937911

Cited by 306 publications

(250 citation statements)

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“…14 Early examples include Montgomery (1991), Peters (1991), Moen (1997), Acemoglu & Shimer (1999), and Burdett et al (2001).…”

Section: Figure 1: Related Literaturementioning

confidence: 99%

Applications and Interviews: A Structural Analysis of Two-Sided Simultaneous Search

Wolthoff

2012

SSRN Journal

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Most of the literature analyzing equilibrium effects of labor market policies assumes bilateral meetings between workers and firms. This ignores the frictions that arise when workers and firms meet in a multilateral way and cannot coordinate their application and hiring decisions. I analyze the magnitude of these frictions. For this purpose, I present an equilibrium search model of the labor market with an endogenous number of contacts between workers and firms. Firms post a wage and a recruitment technology that determines how many applicants they will interview. After observing these contracts, workers decide to which firms to apply. Sending more applications and interviewing more applicants are both costly activities but increase the probability to match. In equilibrium, contract dispersion arises endogenously and workers spread their applications over the different types of contracts. Estimation of the model on the Employment Opportunities Pilot Projects data set provides values for the cost of an application and the cost of an interview. These estimates are used to determine the output loss compared to a Walrasian world. Frictions on the worker and the firm side reduce output by approximately 1% each. There is a potential role for activating labor market policies, because I show that for the estimated parameter values welfare can be improved if unemployed workers increase their search intensity.

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“…14 Early examples include Montgomery (1991), Peters (1991), Moen (1997), Acemoglu & Shimer (1999), and Burdett et al (2001).…”

Section: Figure 1: Related Literaturementioning

confidence: 99%

Applications and Interviews: A Structural Analysis of Two-Sided Simultaneous Search

Wolthoff

2012

SSRN Journal

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“…The model resembles a simple 2 2 × case from Montgomery (1991). Suppose that the labor market consists of two identical workers and two identically productive employers each having only one vacancy.…”

Section: The Modelmentioning

confidence: 99%

“…In the paper we discuss the issue along a simple homogenous-agent model of Montgomery (1991). Employers in the model announce their wage posts in a non-cooperative game and workers apply to the vacancies.…”

Section: Introductionmentioning

confidence: 99%

Homogenous Agent Wage-Posting Model with Wage Dispersion

Steinbacher

2009

SSRN Journal

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In the paper we test a homogenous agent version of the Montgomery's (1991) non-cooperative wage posting model. The inclusion of intrinsic costs, related to the uncertainty when changing the alternative agents are already using, alters the outcome of the model in two respects: firstly, it significantly prolongs the convergence-time to the equilibrium, and, more importantly, it may lead to the wage dispersion, irrespective of equally-productive-agent proposition, something not present in the model of Montgomery.JEL Classification: C7, C15, D8, J3.

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“…The earlier competitive search literature instead focuses solely on search and matching frictions (e.g. see Montgomery (1991), Peters (1991Peters ( , 1997Peters ( , 2000, Moen (1997), Shimer (1996Shimer ( ,2005, Acemoglu andShimer (1999a, 1999b), Burdett, Shi, and Wright (2001), Shi (2001), and Mortensen and Wright (2002)). In competitive search models of the labor market, rms typically compete ex ante by publicly posting (and committing to) job o ers, and workers then direct their search to the more attractive o ers.…”

Section: Introductionmentioning

confidence: 99%

“…2 Montgomery (1991), Peters (1991), Moen (1997) and Shimer (1996) were among the rst to show that competitive search equilibria are constrained e cient. Whereas these authors consider simple environments with homogeneous buyers and/or sellers, subsequent 1 Search models are becoming increasingly popular in quantitative studies of the housing market.…”

Section: Introductionmentioning

confidence: 99%

Competitive search equilibrium with multidimensional heterogeneity and two-sided ex-ante investments

Jerez

2017

Journal of Economic Theory

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We analyze a competitive search environment where heterogeneous workers and firms make costly investments (e.g. in education and physical capital, respectively) before they enter the labor market. A key novelty with respect to existing work is that we allow for multidimensional heterogeneity on both sides of the market. Our environment features transferable utility and symmetric information. As in classical hedonic models, wages depend both on the job's and on the worker's match-relevant characteristics. Yet the presence of search frictions implies that (unlike in those models) markets do not clear. The hedonic wage function and probabilities of finding and filling different jobs are determined endogenously in a competitive search equilibrium. We show that constrained efficient allocations can be determined as optimal solutions to a linear programming problem, whereas the wage function supporting these allocations and associated expected payoffs for workers and firms correspond to the solutions of the `dual' of that linear program. We use this characterization to show that a competitive search equilibrium exist and is constrained efficient under very general conditions. Jerez (2014) makes a similar point in the context of a model where all the match-relevant characteristics of the traders are exogenous. Here we extend the analysis to allow for two-sided ex-ante investments which are potentially multidimensional. The fact that linear programming techniques have been used for the structural estimation of frictionless matching models suggests that our framework is potentially useful for empirical studies of labor markets and other hedonic markets (like that for housing) where search frictions are prevalent Journal of Economic Literature Classification Numbers: D50, D61, D83.

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Equilibrium Wage Dispersion and Interindustry Wage Differentials

Cited by 306 publications

References 2 publications

Applications and Interviews: A Structural Analysis of Two-Sided Simultaneous Search

Applications and Interviews: A Structural Analysis of Two-Sided Simultaneous Search

Homogenous Agent Wage-Posting Model with Wage Dispersion

Competitive search equilibrium with multidimensional heterogeneity and two-sided ex-ante investments

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