Wage Dispersion: Why Are Similar Workers Paid Differently

Dale T. Mortensen's work, particularly his book Wage Dispersion: Why Are Similar Workers Paid Differently, explores the reasons behind pay differentials for similar workers. He posits that these differences are largely due to "search friction" in the labor market and variations in wage policies and productivity among different firms.1

This concept aligns with broader economic theories that acknowledge imperfections in the labor market. While conventional economic theory suggests productivity should directly determine wages, in reality, measuring individual productivity is difficult. Search theory, for example, attempts to explain wage dispersion by highlighting the costs associated with searching for jobs and the imperfections in information available to both job seekers and employers. These frictions mean that even for the same type of work, pay rates can vary significantly between different companies.21