The Dynamics of Multiple Offers and the Frictional Wage Distribution

This paper studies the dynamics of the frictional wage distribution by exploring the interaction between multiple offers and job creation. The model predicts that an increase in aggregate productivity raises the probability for an unemployed worker to receive multiple offers, which pushes firms to post a larger share of high-wage vacancies and leads to a larger increase in the upper than the lower end of the wage distribution. In contrast, an increase in the minimum wage reduces the probability of multiple offers for an unemployed worker, which induces firms to post a larger share of low-wage vacancies and leads to a smaller increase in the upper than the lower end of the wage distribution. I provide evidence consistent with both predictions, which contribute to our understanding of the sullying effect of recessions and the impact of minimum wages on the wage distribution. Moreover, with the composition of vacancies varying endogenously over the business cycle, I show that the cyclical behavior of aggregate unemployment and vacancies is independent of the degree of wage rigidity for a typical firm, and models focusing on a stationary wage distribution could significantly understate the magnitude of frictional wage dispersion