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Faculty of Economics


Gorn, A.

The Role of Headhunters in Wage Inequality: It's All about Matching


Abstract: This study relates the increase in the U.S. top wages to the increasing prominence of headhunters. Headhunters improve the matching between firms and employees via two channels: screening of candidates and passive on-the-job search. I incorporate headhunters in the labor market framework of random search with two-sided heterogeneity. The calibrated model shows that headhunters can account for 35% of the increase in the top 1% wage share and 69% of the increase in the top 10% wage share in the U.S. from 1970 to 2010. I provide supporting cross-country evidence on headhunter hires/fees and top income growth, as well as micro evidence for CEO compensation.

Keywords: wage distribution, top incomes, sorting, on-the-job search, headhunters

JEL Codes: E24 D83 C78 J24 J62 J63

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