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

Gorn, A.

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.