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A Structural Estimation to Evaluate the Wage Penalty after Unemployment in Europe

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Author Info
José Ignacio García Pérez () (Centro de Estudios Andaluces)
Yolanda Rebollo Sanz () (Universidad Pablo de Olavide)

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Abstract

We develop a partial equilibrium job search model to analyse wage mobility and its relation to job mobility. The basic job search model is generalized by introducing wage renegotiation at the firm level, on-the-job search and heterogeneity of individuals through the value of time while unemployed. Transitions into and out of unemployment, movement from one job to another without passing through unemployment, and wage growth on the job are all outcomes of this model. We estimate the model structurally in order to identify the sources of wage mobility in four European countries: Spain, Germany, France and Portugal. We find that German and Spanish workers tend to suffer larger wage penalties after unemployment than their French and Portuguese counterparts. Wage losses in Germany are larger and mainly related to better wage opportunities when employed, while in Spain wage losses are lower but tend to remain longer since wage growth while employed is lower than in Germany. We also use the model's structural parameters to evaluate the effect that different changes in the Unemployment Benefit system may have on wage changes after unemployment. We determine that a sole level for unemployment benefits (dependent on the national average wage level) reduces wage penalties for all workers with the exception of the highly educated.

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Paper provided by Centro de Estudios Andaluces in its series Economic Working Papers at Centro de Estudios Andaluces with number E2005/15.

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Length: 39 pages
Date of creation: 2005
Date of revision:
Handle: RePEc:cea:doctra:e2005_15

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Related research
Keywords: Structural estimation; wage mobility; job mobility;

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Find related papers by JEL classification:
J60 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - General
J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Pissarides, C. & Wadsworth, J., 1988. "On-The-Job Search: Some Empirical Evidence," Papers 317, London School of Economics - Centre for Labour Economics.
  2. Abraham, Katharine G & Farber, Henry S, 1987. "Job Duration, Seniority, and Earnings," American Economic Review, American Economic Association, vol. 77(3), pages 278-97, June. [Downloadable!] (restricted)
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  3. J. Ignacio García-Pérez, 2006. "Job separation in a non-stationary search model: a structural estimation to evaluate alternative unemployment insurance systems," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(2), pages 245-272. [Downloadable!]
  4. Cahuc, Pierre & Postel-Vinay, Fabien & Robin, Jean-Marc, 2003. "Wage Bargaining with On-The-Job Search: Theory and Evidence," CEPR Discussion Papers 4154, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  5. Silvio Rendón, 2001. "Job Creation under Liquidity Constraints: the Spanish Case," Banco de España Working Papers 0101, Banco de España. [Downloadable!]
  6. Flinn, C. & Heckman, J., 1982. "New methods for analyzing structural models of labor force dynamics," Journal of Econometrics, Elsevier, vol. 18(1), pages 115-168, January. [Downloadable!] (restricted)
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  7. Meyer, Bruce D, 1990. "Unemployment Insurance and Unemployment Spells," Econometrica, Econometric Society, vol. 58(4), pages 757-82, July. [Downloadable!] (restricted)
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  8. Dolado, J.J. & Jimeno, J.F., 1995. "Why Is Spanish Unemployment so High?," Papers 9515, Centro de Estudios Monetarios Y Financieros-.
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  9. Silvio Rendón, 2001. "Job Creation under Liquidity Constraints: the Spanish Case," Banco de España Working Papers 0101, Banco de España. [Downloadable!]
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  10. Namkee Ahn & José Ignacio García-Pérez, 2002. "Unemployment duration and workers' wage aspirations in Spain," Spanish Economic Review, Springer, vol. 4(2), pages 103-118. [Downloadable!] (restricted)
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  11. Dale Mortensen, 1984. "Job Search and Labor Market Analysis," Discussion Papers 594, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
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  12. Harry J. Holzer, 1987. "Job search by employed and unemployed youth," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 40(4), pages 601-611, July.
  13. Alfonso Rosolia & Gilles Saint Paul, 1998. "The Effect of Unemployment Spells on Subsequent Wages in Spain," Economics Working Papers 295, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
  14. Jackman, R & Layard, Richard & Pissarides, C, 1989. "On Vacancies," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 51(4), pages 377-94, November.
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  1. Jahn, Elke J. & Wagner, Thomas, 2008. "Do Targeted Hiring Subsidies and Profiling Techniques Reduce Unemployment?," IZA Discussion Papers 3768, Institute for the Study of Labor (IZA). [Downloadable!]
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