TY  - JOUR
AU  - Davis,Steven J.
TI  - The Quality Distribution of Jobs and the Structure of Wages in Search Equilibrium
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 8434
PY  - 2001
Y2  - August 2001
UR  - http://www.nber.org/papers/w8434
L1  - http://www.nber.org/papers/w8434.pdf
N1  - Author contact info:
Steven J. Davis
Booth School of Business
The University of Chicago
5807 South Woodlawn Avenue
Chicago, IL 60637
Tel: 773/702-7312
Fax: 773/834-0733
E-Mail: Steven.Davis@ChicagoBooth.edu
AB  - When match formation is costly and wage determination is decentralized, privately optimal investments in job and worker quality diverge from socially efficient outcomes. To explore this issue, I consider search equilibrium environments with endogenous quality distributions for jobs and workers. I show that a search equilibrium with decentralized wage setting exhibits excessive relative supplies of inferior jobs and inferior workers. Moreover, there are fundamental tensions between the standard wage-setting condition for an efficient total supply of jobs (and workers) in two-sided search models and the conditions required for efficient mixes of jobs and workers. I also derive the efficient wage structure, contrast its properties to the decentralized wage structure and evaluate the welfare and productivity gains of moving to an efficient wage structure. Numerical exercises show that centralized bargaining between a labor union and an employer confederation over the structure of wages can improve productivity and welfare by compressing job-related wage differentials.
ER  -