Wage Dispersion with Heterogeneous Wage Contracts

Cynthia Doniger

Review of Economic Dynamics, 2023, vol. 51, 138-160

Abstract: I study a labor market in which identical workers search on- and off-the-job and heterogeneous firms employ using either an ex-ante posted wage or flexible wage contracts contingent on outside options. Firm level costs for contingent contracts generate a segmented equilibrium in which less productive firms post wages. The model with heterogeneous contracts can achieve wage dispersion, labor share, employment transitions, and flow value of unemployment that are simultaneously consistent with empirical observations while capturing information frictions and search externalities modeled by ex-ante wage posting. In contrast to well known results regarding pure wage posting models, a good fit to these data can be achieved even when the vast majority of firms post wages. Matching to moments for the U.S. economy in the 2010s implies roughly 58 percent of firms post wages and employ nearly 30 percent of workers under such contracts. (Copyright: Elsevier)

Keywords: Wage Posting; Sequential Auction; Random Search; Wage Dispersion; Value of Unemployment; Labor Share (search for similar items in EconPapers)
JEL-codes: E24 E25 J31 J41 M52 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1016/j.red.2022.12.003

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