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Title: Asymmetric Information, Wage Dispersion and Unemployment Fluctuations

Citation Type: Miscellaneous

Publication Year: 2009

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Abstract: The standard matching model successfully describes how the labor market func-tions, but it has at least two major problems. First, unemployment and vacancies areas volatile as labor productivity yet the aggregate data illustrates that they are muchmore volatile by a factor of 20. Second, the wage dispersion magnitudes occurringthroughout the micro databases the ratio between average wage paid and lowest wagepaid is at least 2 times greater than that predicted by the calibrated model. Thispaper proves that within a two-side asymmetric information environment, the take-it-or-leave-it offer mechanism effectively amplifies wage dispersion but it is unable toamplify unemployment volatility. Intuitively, through possessing private information,both firms and workers will make only modest wage offers to avoid separation, a mech-anism that increases the mean-to-min ratio. When aggregate productivity increases,low productivity firms make more generous offers than those with high productivity,while high amenity workers require more than the low ones. Average wage consequently closely follows aggregate productivity, implying little job creation.

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Authors: Dao, Ha

Publisher: University of Quebec at Montreal

Data Collections: IPUMS CPS

Topics: Other

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