Tamás Papp's homepage

Research interests

Macroeconomics, Labor markets and search frictions, Bayesian econometrics, Numerical methods




Frictional wage dispersion with Bertrand competition: an assessment

2013, Review of Economic Dynamics

I examine whether a version of the Cahuc et al. (2006) model can match the magnitude of wage dispersion, as measured by the ratio of the average and the lowest wage - the so-called mean-min ratio of Hornstein et al. (2011). I find that the workers' bargaining power is a crucial parameter: the mean-min ratio strictly decreases in the bargaining power up to a point near 1/2 and is essentially flat thereafter, generating the same amount of wage dispersion as the canonical wage ladder model, which is a special case of the CPVR model. Consequently, this model can yield large wage dispersion only for low bargaining power on the workers' side. I show that the share of job-to-job transitions with wage drops is decreasing in the bargaining power, calibrate the latter to the former, and demonstrate that the CPVR model generates an empirically plausible amount of wage dispersion. I also show that negative wages arise when workers have no bargaining power, and discuss the implications for the empirical findings of Postel-Vinay and Robin (2002b).

Working papers

Accounting for Idiosyncratic Wage Risk Over the Business Cycle

(joint with Alisdair McKay)


We demonstrate that wage volatility, measured as the cross-sectional variance of wage changes in PSID data, is counter-cyclical. We quantify this relationship by estimating the regression coefficient of wage volatility on the national unemployment rate in a multilevel Bayesian model, then decompose this coefficient into three main factors. During a recession, wage volatility increases substantially among those workers experiencing spells of unemployment: the cyclical changes in the variance within this group explain about 55\% of the cyclical variation in wage volatility. The variance within the group not experiencing unemployment explains 18\%. Finally, an increase in the fraction of workers experiencing unemployment explains 25\%.

We show that a calibrated search-and-matching model of the labor market with on-the-job search gives a good account of the cyclical variation in idiosyncratic wage risk among those experiencing unemployment and of the composition effect over the business cycle. We show that in our model, this result is driven mostly by fluctuations of the reservation wage in response to labor market conditions.


All my public software libraries are available on Github.


My blog, mostly on software and technical issues.

Contact information

Institute for Advanced Studies (IHS)
Department of Economics & Finance, Room A314
Stumpergasse 56
A-1060 Vienna

Tel: +43-1-59991-147
Fax: +43-1-59991-163

Date: 2011-02-06 Sun

Author: Tamás Papp

Created: 2014-01-07 Tue 15:33

Emacs 24.3.1 (Org mode 8.2.4)