Download or read book Essays on Matching and Wage Inequality written by Son Le and published by . This book was released on 2019 with total page 316 pages. Available in PDF, EPUB and Kindle. Book excerpt: Recent empirical analyses emphasize the essential role of within-firm heterogeneity, between-firm heterogeneity, and the firm size distribution in explaining wage inequality trends. We propose a frictionless matching model that simultaneously allows for within-firm heterogeneity, between-firm heterogeneity, and firm size distribution in a general equilibrium framework. Endowed with different production technologies, firms make decisions on the distribution of workers and the number of workers to hire according to endogenous market wages. The first welfare theorem, the second welfare theorem, and a sufficient continuity condition that guarantees both welfare theorems apply are established. The concepts of pure matching and assortative matching are generalized for this model. We define a generalized version of the twist condition and a notion of complementarity between worker types and firm types which are sufficient for pure matching and assortative matching respectively. The effect of technological change is decomposed into the substitution effect and the size effect. The substitution effect measures the change in equilibrium not allowing the firm size distribution to adjust. The size effect component in our decomposition is a new factor which measures the additional effect on equilibrium when there is an interaction between the quality choice of workers and the quantity choice of workers in a general equilibrium setting. Functional forms of production technologies allow us to analyze the substitution effect and the size effect of technological change both qualitatively and quantitatively using sector-level data. The model explains 25% of the changes in within-sector wage inequality between 1980 and 2016.