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Exploring the Causes of Frictional Wage Dispersion

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  • Tjaden, Volker

    ()
    (University of Bonn)

  • Wellschmied, Felix

    ()
    (University of Bonn)

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    Abstract

    Standard search models are unreliable for structural inference of the underlying sources of wage inequality because they are inconsistent with observed residual wage dispersion. We address this issue by modeling skill development and duration dependence in unemployment benefits in a random on the job search model featuring two-sided heterogeneity. General human capital and search on the job are the main drivers behind our model's empirical success in replicating wage dispersion (residual and overall). A realistic quantitative appraisal of search efficiencies needs to account for one third of job to job transitions resulting in wage losses. Controlling for them has important implications for the inferred sources of wage inequality. We find that the search friction accounts for around 18 percent of observed wage inequality.

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    Bibliographic Info

    Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6299.

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    Length: 49 pages
    Date of creation: Jan 2012
    Date of revision:
    Publication status: published in: American Economic Journal: Macroeconomics, 2014, 6 (1), 134-161
    Handle: RePEc:iza:izadps:dp6299

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    Keywords: heterogeneity; frictional wage dispersion; search model;

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    References

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    1. Fabien Postel-Vinay & Jean-Marc Robin, 2002. "Equilibrium Wage Dispersion with Worker and Employer Heterogeneity," Econometrica, Econometric Society, vol. 70(6), pages 2295-2350, November.
    2. Christopher Flinn & James Mabli, 2008. "On-the-Job Search, Minimum Wages, and Labor Market Outcomes in an Equilibrium Bargaining Framework," Carlo Alberto Notebooks 91, Collegio Carlo Alberto.
    3. Carlos Carrillo-Tudela, 2012. "Job Search, Human Capital and Wage Inequality," CESifo Working Paper Series 3979, CESifo Group Munich.
    4. Dustmann, Christian & Meghir, Costas, 1999. "Wages, Experience and Seniority," CEPR Discussion Papers 2077, C.E.P.R. Discussion Papers.
    5. Bruce Fallick & Charles A. Fleischman, 2004. "Employer-to-employer flows in the U.S. labor market: the complete picture of gross worker flows," Finance and Economics Discussion Series 2004-34, Board of Governors of the Federal Reserve System (U.S.).
    6. Iourii Manovskii & Marcus Hagedorn, 2011. "Search Frictions and Wage Dispersion," 2011 Meeting Papers 1195, Society for Economic Dynamics.
    7. Kenneth Burdett & Carlos Carrillo‐Tudela & Melvyn G. Coles, 2011. "Human Capital Accumulation And Labor Market Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(3), pages 657-677, 08.
    8. Giuseppe Moscarini, 2005. "Job Matching and the Wage Distribution," Econometrica, Econometric Society, vol. 73(2), pages 481-516, 03.
    9. Bontemps, Christian & Robin, Jean-Marc & Van den Berg, Gerard J, 1999. "An Empirical Equilibrium Job Search Model with Search on the Job and Heterogeneous Workers and Firms," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 1039-74, November.
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    Cited by:
    1. Tamas Papp, 2013. "Frictional wage dispersion with Bertrand competition: an assessment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(3), pages 540-552, July.
    2. Petra Marotzke, 2014. "Job Search and the Age-Inequality Profile," Working Paper Series of the Department of Economics, University of Konstanz 2014-06, Department of Economics, University of Konstanz.

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