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

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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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Keywords: Structural estimation; wage mobility; job mobility;

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  1. Katharine G. Abraham & Henry S. Farber, 1986. "Job Duration, Seniority, and Earnings," NBER Working Papers 1819, National Bureau of Economic Research, Inc.
  2. Jackman, R & Layard, Richard & Pissarides, C, 1989. "On Vacancies," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, Department of Economics, University of Oxford, vol. 51(4), pages 377-94, November.
  3. Dolado, J.J. & Jimeno, J.F., 1995. "Why Is Spanish Unemployment so High?," Papers, Centro de Estudios Monetarios Y Financieros- 9515, Centro de Estudios Monetarios Y Financieros-.
  4. Namkee Ahn & J. Ignacio García-Pérez, . "Unemployment duration and worker's wage aspiration in Spain," Studies on the Spanish Economy, FEDEA 58, FEDEA.
  5. Pierre Cahuc & Fabien Postel-Vinay & Jean-Marc Robin, 2003. "Wage bargaining with on-the-job search : theory and evidence," Research Unit Working Papers, Laboratoire d'Economie Appliquee, INRA 0212, Laboratoire d'Economie Appliquee, INRA.
  6. Pissarides, C. & Wadsworth, J., 1988. "On-The-Job Search: Some Empirical Evidence," Papers, London School of Economics - Centre for Labour Economics 317, London School of Economics - Centre for Labour Economics.
  7. James J. Heckman & Christopher J. Flinn, 1982. "New Methods for Analyzing Structural Models of Labor Force Dynamics," NBER Working Papers 0856, National Bureau of Economic Research, Inc.
  8. 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., John Wiley & Sons, Ltd., vol. 21(2), pages 245-272.
  9. Dale Mortensen, 1984. "Job Search and Labor Market Analysis," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 594, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  10. Bruce D. Meyer, 1988. "Unemployment Insurance And Unemployment Spells," NBER Working Papers 2546, National Bureau of Economic Research, Inc.
  11. 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.
  12. Silvio Rendón, 2000. "Job creation under liquidity constraints: The Spanish case," Economics Working Papers, Department of Economics and Business, Universitat Pompeu Fabra 488, Department of Economics and Business, Universitat Pompeu Fabra.
  13. Silvio Rendón, 2001. "Job Creation under Liquidity Constraints: the Spanish Case," Banco de Espa�a Working Papers, Banco de Espa�a 0101, Banco de Espa�a.
  14. Alfonso Rosolia & Gilles Saint Paul, 1998. "The effect of unemployment spells on subsequent wages in Spain," Economics Working Papers, Department of Economics and Business, Universitat Pompeu Fabra 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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