Search and the Positive Wage Correlation across Occupations

This paper extends the equilibrium search model of Burdett and Mortensen by introducing two different occupations. Local monopsony power and the complementarity of the occupations in production imply that firms occupy the same position in the wage distribution of each occupation. The model also solves for the explicit occupation-specific wage distribution and links them via the production function. Due to search fi:ictions fewer individuals choose tbe occupation with high education cost compared to the first best. Furthermore, wages of higher educated workers are more compressed than wages of lower educated workers, because firms can extract more search rent fi:om higher educated workers.