Title: CHAPTER 4 Wage Differentials, Discrimination and Efficiency
Abstract: Abstract In this paper I analyze a large labor market where workers are heterogeneous in productivity and where (homogeneous) firms post wages and a ranking of workers to direct workers’ search. I show that there is a unique equilibrium, which has the following properties. First, the wage differential is reversely related to productivity when the productivity differential is small. Second, as the productivity differential decreases to zero, the reverse wage differential increases, and so it remains strictly positive in the limit. Third, high-productivity workers are not discriminated against even when they have lower wage, because they always receive higher employment priority and higher expected wage. Fourth, the equilibrium is socially efficient, and so the reverse wage differential is part of the efficient mechanism. Finally, I provide numerical examples to illustrate the wage distribution.
Publication Year: 2006
Publication Date: 2006-01-01
Language: en
Type: book-chapter
Indexed In: ['crossref']
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