Abstract
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.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 108-134 |
| Number of pages | 27 |
| Journal | Review of Economic Dynamics |
| Volume | 19 |
| DOIs | |
| State | Published - Jan 1 2016 |
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All Science Journal Classification (ASJC) codes
- Economics and Econometrics
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Burdett-Mortensen model of on-the-job search with two sectors. / Hoffmann, Florian; Shi, Shouyong.
In: Review of Economic Dynamics, Vol. 19, 01.01.2016, p. 108-134.Research output: Contribution to journal › Article
TY - JOUR
T1 - Burdett-Mortensen model of on-the-job search with two sectors
AU - Hoffmann, Florian
AU - Shi, Shouyong
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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UR - http://www.scopus.com/inward/citedby.url?scp=84958120767&partnerID=8YFLogxK
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 -