Technology, Wage Dispersion and Inflation
We study the effect of inflation on the wage dispersions due to firm heterogeneity and on the job search, in the context of a labour market Ai la Postel Vinay and Robin (International Economic Review 43, 2002) and micro founded money demand. The productivity distribution of firms is firstly assumed to be exogenously given and we find that a rise of inflation diminishes the wage dispersion. We then allow the firms to adjust their productivity level by investment. We then find that a rise in inflation can makes firms' productivity less dispersed by driving the least productive firms not profitable and thus out of business, because the demand declines due to the increase in the cost of holding money. This decrease in productivity dispersion furthermore also diminishes the wage dispersion.