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SEARCH DIRECTION AND WAGE DISPERSION *
Author(s) -
Halko MarjaLiisa,
Kultti Klaus,
Virrankoski And Juha
Publication year - 2008
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/j.1468-2354.2008.00475.x
Subject(s) - wage dispersion , unemployment , wage , economics , dispersion (optics) , price dispersion , mixing (physics) , microeconomics , mathematical economics , labour economics , efficiency wage , macroeconomics , physics , quantum mechanics , optics
In a directed search model, we allow the unemployed and the vacancies to choose whether to send or receive wage offers. This determines the market structure. There are several equilibria but a unique evolutionary stable one. Wage offers are made under incomplete information about the number of offers, and the equilibrium strategies involve mixing. This results in wage dispersion. We show that if the unemployment–vacancy ratio is close to unity, the stable equilibrium consists of two submarkets with opposite search directions. Otherwise, the long side of the market sends offers. The stable equilibrium is efficient, given the frictions.