Wage Differentials, Employer Size, and Unemployment

The unique equilibrium solution to a game in which a continuum of individual employers choose permanent wage offers and a continuum of workers search by sequentially sampling from the set of offers is characterized. Wage dispersion is a robust outcome provided that workers search while employed as well as when unemployed. The unique nondegenerate equilibrium distribution of wage offers is constructed for three cases: (1) identical workers and employers, (2) identical employers and an atomless distribution of worker supply prices, and (3) identical workers and an atomless distribution of job productivities. Copyright 1998 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.