Coles, M and Mortensen, DT (2011) Equilibrium Wage and Employment Dynamics in a Model of Wage Posting without Commitment. UNSPECIFIED. IZA Discussion Papers.
Coles, M and Mortensen, DT (2011) Equilibrium Wage and Employment Dynamics in a Model of Wage Posting without Commitment. UNSPECIFIED. IZA Discussion Papers.
Coles, M and Mortensen, DT (2011) Equilibrium Wage and Employment Dynamics in a Model of Wage Posting without Commitment. UNSPECIFIED. IZA Discussion Papers.
Abstract
A rich but tractable variant of the Burdett-Mortensen model of wage setting behavior is formulated and a dynamic market equilibrium solution to the model is defined and characterized. In the model, firms cannot commit to wage contracts. Instead, the Markov perfect equilibrium to the wage setting game, characterized by Coles (2001), is assumed. In addition, firm recruiting decisions, firm entry and exit, and transitory firm productivity shocks are incorporated into the model. Given that the cost of recruiting workers is proportional to firm employment, we establish the existence of an equilibrium solution to the model in which wages are not contingent on firm size but more productive employers always pay higher wages. Although the state space, the distribution of workers over firms, is large in the general case, it reduces to a scalar that can be interpreted as the unemployment rate in the special case of homogenous firms. Furthermore, the equilibrium is unique. As the dimension of the state space is equal to the number of firms types in general, an (approximate) equilibrium is computable.
Item Type: | Monograph (UNSPECIFIED) |
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Uncontrolled Keywords: | wage dispersion; wage setting; rank-preserving equilibrium |
Subjects: | H Social Sciences > HB Economic Theory |
Divisions: | Faculty of Social Sciences Faculty of Social Sciences > Economics, Department of |
SWORD Depositor: | Unnamed user with email elements@essex.ac.uk |
Depositing User: | Unnamed user with email elements@essex.ac.uk |
Date Deposited: | 05 Jan 2013 17:57 |
Last Modified: | 16 May 2024 18:16 |
URI: | http://repository.essex.ac.uk/id/eprint/4925 |