RENT SHARING IN AN EQUILIBRIUM-MODEL OF MATCHING AND TURNOVER

This article characterizes labor markets in which the heterogeneity of workers and firms results in thin markets and rents. Neoclassical marginal analysis and matching are blended into a computable general equilibrium model of trade in efficiency units of labor. Although workers' bargaining problems are interrelated, a simple wage contract generates wage flexibility and efficient matching in the model's equilibrium. Equilibrium wages are predicted to vary with the diversity of firms, the scarcity of skills, and the costliness of search. The model is applied to superstar markets, union bargaining in sports, interindustry wage differentials, and the relationship between pay and profit.