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Job Separation Under Uncertainty and the Wage Distribution

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  • Prat Julien

    (Department of Economics, Vienna University)

Abstract

This paper examines a search-matching model in which match specific output follows a geometric Brownian motion. As opposed to Poisson Processes, Brownian motions generate a negative correlation between job output and the likelihood of separation. Introducing geometric Brownian motion improves the fit of the standard model with respect to the observed patterns of worker turnover and wage dispersion, without taking from its relevance at the macro level. Firstly, the proposed set-up does not require learning about match quality in order to yield a hump-shaped hazard rate of job separation. Secondly, the aggregate wage distribution is unimodal and its right tail belongs to the Pareto family, so it satisfies the "heavy-tail" property that is commonly observed in the data.

Suggested Citation

  • Prat Julien, 2006. "Job Separation Under Uncertainty and the Wage Distribution," The B.E. Journal of Macroeconomics, De Gruyter, vol. 6(1), pages 1-34, January.
    • Handle: RePEc:bpj:bejmac:v:contributions.6:y:2006:i:1:n:2
    DOI: 10.2202/1534-6005.1340
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    Cited by:

    1. Andrea Vindigni & Simone Scotti & Cristina Tealdi, 2015. "Uncertainty and the Politics of Employment Protection," Journal of Labor Economics, University of Chicago Press, vol. 33(1), pages 209-267.
    2. Julien Prat, 2010. "The rate of learning-by-doing: estimates from a search-matching model," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(6), pages 929-962.
    3. Marcin Woźniak, 2015. "Can the Stochastic Equilibrium Job Search Models Fit Transition Economies?," Acta Oeconomica, Akadémiai Kiadó, Hungary, vol. 65(4), pages 567-591, December.

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