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Unemployment risk and wage differentials

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  • Roberto Pinheiro
  • Ludo Visschers

Abstract

Workers in less secure jobs are often paid less than identical-looking workers in more secure jobs. We show that this lack of compensating differentials for unemployment risk can arise in equilibrium when all workers are identical, and firms differ, but do so only in offered job security (the probability that the worker is not sent into unemployment). In a setting where workers search on and off the job, wages paid increase with job security for at least all firms in the risky tail of the distribution of firm-level unemployment risk. As a result, unemployment spells become persistent for low-wage and unemployed workers, a seeming pattern of ‘unemployment scarring’, that is created entirely by firm heterogeneity alone. Higher in the wage distribution, workers can take wage cuts to move to more stable employment

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Bibliographic Info

Paper provided by Universidad Carlos III, Departamento de Economía in its series Economics Working Papers with number we1209.

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Date of creation: Jan 2012
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Handle: RePEc:cte:werepe:we1209

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Keywords: Layoff rates; Unemployment risk; Wage differentials; Unemployment scarring;

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As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Why less secure jobs pay less
    by Economic Logician in Economic Logic on 2012-04-12 14:43:00

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