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

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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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Keywords: Structural estimation; wage mobility; job mobility;

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  1. Mortensen, Dale T., 1987. "Job search and labor market analysis," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 2, chapter 15, pages 849-919 Elsevier.
  2. Silvio Rendón, 2001. "Job Creation under Liquidity Constraints: the Spanish Case," Banco de Espa�a Working Papers 0101, Banco de Espa�a.
  3. Namkee Ahn & J. Ignacio García Pérez, 2000. "Unemployment duration and workers' wage aspirations in Spain," Economics Working Papers 426, Department of Economics and Business, Universitat Pompeu Fabra.
  4. Katharine G. Abraham & Henry S. Farber, 1986. "Job Duration, Seniority and Earnings," Working papers 407, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. Harry J. Holzer, 1987. "Job search by employed and unemployed youth," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 40(4), pages 601-611, July.
  6. Bruce D. Meyer, 1988. "Unemployment Insurance And Unemployment Spells," NBER Working Papers 2546, National Bureau of Economic Research, Inc.
  7. Dolado, J.J. & Jimeno, J.F., 1995. "Why Is Spanish Unemployment so High?," Papers 9515, Centro de Estudios Monetarios Y Financieros-.
  8. Pierre Cahuc & Fabien Postel-Vinay & Jean-Marc Robin, 2003. "Wage bargaining with on-the-job search : theory and evidence," Research Unit Working Papers 0212, Laboratoire d'Economie Appliquee, INRA.
  9. Silvio Rendón, 2001. "Job Creation under Liquidity Constraints: the Spanish Case," Banco de Espa�a Working Papers 0101, Banco de Espa�a.
  10. 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.
  11. J. Ignacio Garc�a-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.
  12. Pissarides, C. & Wadsworth, J., 1988. "On-The-Job Search: Some Empirical Evidence," Papers 317, London School of Economics - Centre for Labour Economics.
  13. 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.
  14. 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.
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Cited by:
  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).

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