Wage Differentials as Reputation
نویسنده
چکیده
Equilibrium search models obtained endogenous wage differentials among identical firms and workers based on the equal profit assumption. We formulate a more fundamentally dynamic game with identical players where workers can strategically quit and firms cannot commit to future wages, and find that equilibrium wage differentials arise due to different worker expectations on the firms’ future behavior. High-wage reputation gives a rent to firms, and workers also prefer to work for firms with high-wage reputation. Implications from the models are consistent with many empirical findings including the firm size-wage effect. JEL classification number: C73, D83
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