Faculty of Economics and Business Administration Publications Database

Competitive Search Markets with Heterogeneous Workers

Volume: 49
Number: 6
Pages: 1525 - 1542
Month: August
ISSN-Print: 0014-2921
Link External Source: Online Version
Year: 2005
Keywords: Search markets; Efficiency wages; Wage differential
Abstract: This paper extends the concept of competitive search markets to the case with heterogeneous workers. If offers can condition on workers’ productivity as this depends on some formal qualification, the equilibrium is separating and efficient, though there is wage compression. If offers cannot condition on workers’ productivity, the nature of the equilibrium depends on the size of the workers’ productivity difference. For intermediate values of the productivity difference, separation is achieved only by paying high types an “efficiency wage” premium. We discuss several implications for wage dispersion and efficiency.