This paper explains why firms with identical opportunities may use different technologies and offer different wages. Our key assumption is that workers must engage in costly search in order to gather information about jobs (Stigler (1961)). In equilibrium, some firms adopt high fixed cost, high productivity technologies, offer high wages, and fill job openings quickly. Other firms adopt less capital-intensive technologies and offer low wages, hiring mostly uninformed workers. In equilibrium, the amount of wage dispersion leaves workers indifferent about whether to gather information, and the fraction of informed workers leaves firms indifferent about their wage and technology choice. We show that worker search, which would appear to be a rent-seeking activity in partial equilibrium, may be efficiency-enhancing in general equilibrium.

During the nineteenth century most Western societies extended voting rights, a decision that led to unprecedented redistributive programs. We argue that these political reforms can be viewed as strategic decisions by the political elite to prevent widespread social unrest and revolution. Political transition, rather than redistribution under existing political institutions, occurs because current transfers do not ensure future transfers, while the extension of the franchise changes future political equilibria and acts as a commitment to redistribution. Our theory also offers a novel explanation for the Kuznets curve in many Western economies during this period, with the fall in inequality following redistribution due to democratization.