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Wage Dispersion In The Search And Matching Model With Intra-firm Bargaining

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Executive Summary

Matched employer-employee data exhibits both wage and productivity dispersion across firms and suggest that a linear relationship holds between the average wage paid and a firm productivity. The purpose of this paper is to demonstrate that these facts can be explained by a search and matching model when firms are heterogenous with respect to productivity, are composed of many workers, and face diminishing returns to labor given the wage paid to identical workers is the solution to the Stole-Zwiebel bilateral bargaining problem.

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