Exploring the Causes of Frictional Wage Dispersion
AbstractStandard 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 InfoPaper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6299.
Length: 49 pages
Date of creation: Jan 2012
Date of revision:
Publication status: published in: American Economic Journal: Macroeconomics, 2014, 6 (1), 134-161
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Find related papers by JEL classification:
- J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
- J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-02-20 (All new papers)
- NEP-LAB-2012-02-20 (Labour Economics)
- NEP-LMA-2012-02-20 (Labor Markets - Supply, Demand, & Wages)
- NEP-LTV-2012-02-20 (Unemployment, Inequality & Poverty)
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