Equilibrium Wage Dispersion, Firm Size, and Growth

M. G. Coles

Research output: Contribution to journalArticle

Abstract

This paper analyzes a model of equilibrium wage dynamics and wage dispersion across firms. It considers a labor market where firms set wages and workers use on-the-job search to look for better paid work. It analyzes a perfect equilibrium where each firm can change its wage paid at any time, and workers use optimal quit strategies. Firms trade off higher wages against a lower quit rate, and large firms (those with more employees) always pay higher wages than small firms. Non-steady-state dispersed price equilibria are also analyzed, which describe how wages vary as each firm and the industry as a whole grow over time. Journal of Economic Literature Classification Numbers: D43, J41.

Original languageEnglish (US)
Pages (from-to)159-187
Number of pages29
JournalReview of Economic Dynamics
Volume4
Issue number1
DOIs
StatePublished - Jan 2001

Keywords

  • On-the-job search; wage dispersion; perfect equilibrium

ASJC Scopus subject areas

  • Economics and Econometrics

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