Burdett-Mortensen Model of On-the-Job Search with Two Sectors

57 Pages Posted: 11 Dec 2014 Last revised: 8 Aug 2015

See all articles by Florian Hoffmann

Florian Hoffmann

University of British Columbia (UBC)

Shouyong Shi

Pennsylvania State University

Date Written: August 2015

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.

Keywords: Search on the job, Wage dispersion, Constant tension

JEL Classification: J00, D4

Suggested Citation

Hoffmann, Florian and Shi, Shouyong, Burdett-Mortensen Model of On-the-Job Search with Two Sectors (August 2015). Available at SSRN: https://ssrn.com/abstract=2536700 or http://dx.doi.org/10.2139/ssrn.2536700

Florian Hoffmann

University of British Columbia (UBC) ( email )

2329 West Mall
Vancouver, British Columbia BC V6T 1Z4
Canada

Shouyong Shi (Contact Author)

Pennsylvania State University ( email )

University Park
State College, PA 16802
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
332
Abstract Views
1,433
Rank
166,135
PlumX Metrics