TY - JOUR
T1 - Burdett-Mortensen model of on-the-job search with two sectors
AU - Hoffmann, Florian
AU - Shi, Shouyong
N1 - Funding Information:
We thank two anonymous referees for helpful comments. The authors started the work on this paper when both were at University of Toronto. We are grateful to the Social Sciences and Humanities Research Council of Canada for financial support. In addition, Shi gratefully acknowledges financial support from the Canada Research Chairs , the Bank of Canada Fellowship, and Pennsylvania State University . The view expressed here is the authors' own and does not reflect the view of the Bank of Canada.
Publisher Copyright:
© 2015 Elsevier Inc.
Copyright:
Copyright 2016 Elsevier B.V., All rights reserved.
PY - 2016/1/1
Y1 - 2016/1/1
N2 - The focus of this paper is on the steady state of a two-sector economy with undirected search where employed and unemployed workers can search for jobs, both within a sector and between the sectors. As in the one-sector model, on-the-job search generates wage dispersion among homogeneous workers. The analysis of the two-sector model uncovers a property called constant tension that is responsible for analytical tractability. We characterize the steady state in all cases with constant tension. When time discounting vanishes, constant tension yields the endogenous separation rate in each sector as a linear function of the present value for a worker. The one-sector economy automatically satisfies constant tension, in which case the linear separation rate implies that equilibrium offers of the worker value are uniformly distributed. Constant tension also has strong predictions for worker transitions and value/wage dispersion, both within a sector and between the two sectors. When constant tension does not hold, we compute the steady state numerically and illustrate its properties.
AB - The focus of this paper is on the steady state of a two-sector economy with undirected search where employed and unemployed workers can search for jobs, both within a sector and between the sectors. As in the one-sector model, on-the-job search generates wage dispersion among homogeneous workers. The analysis of the two-sector model uncovers a property called constant tension that is responsible for analytical tractability. We characterize the steady state in all cases with constant tension. When time discounting vanishes, constant tension yields the endogenous separation rate in each sector as a linear function of the present value for a worker. The one-sector economy automatically satisfies constant tension, in which case the linear separation rate implies that equilibrium offers of the worker value are uniformly distributed. Constant tension also has strong predictions for worker transitions and value/wage dispersion, both within a sector and between the two sectors. When constant tension does not hold, we compute the steady state numerically and illustrate its properties.
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U2 - 10.1016/j.red.2015.10.003
DO - 10.1016/j.red.2015.10.003
M3 - Article
AN - SCOPUS:84958120767
VL - 19
SP - 108
EP - 134
JO - Review of Economic Dynamics
JF - Review of Economic Dynamics
SN - 1094-2025
ER -