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Job Search, Human Capital and Wage Inequality

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  • Carrillo-Tudela, Carlos

    ()
    (University of Essex)

Abstract

The objective of this paper is to construct and quantitatively assess an equilibrium search model with on-the-job search and general human capital accumulation. In the model workers enter the labour market with different abilities and firms differ in their productivities. Wages are dispersed because of search frictions and workers' productivity differentials. The model generates a simple (log) wage variance decomposition that is used to measure the importance of firm and worker productivity differentials, frictional wage dispersion and workers' sorting dynamics. I calibrate the model using a sample of young workers for the UK. I show that wage inequality among low skilled workers is mostly due to differences in their productivities. Among medium skilled workers frictional wage dispersion and sorting dynamics are, together, as important as workers' productivity differentials. Differences in firms' productivities are also an important source of wage inequality for both skill groups and account for a large share of frictional wage dispersion. Quantitatively the model is able to reproduce the observed cross-sectional wage distribution, the average wage-experience profile and the amount of frictional wage dispersion observed in the data as measured by the Mean-min ratio.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6949.

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Length: 45 pages
Date of creation: Oct 2012
Date of revision:
Handle: RePEc:iza:izadps:dp6949

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Keywords: job search; human capital accumulation; wage dispersion; turnover;

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References

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  1. Abraham, Katharine G & Farber, Henry S, 1987. "Job Duration, Seniority, and Earnings," American Economic Review, American Economic Association, vol. 77(3), pages 278-97, June.
  2. Bontemps, C. & Robin, J.M. & van den Berg, G.J., 1998. "Equilibrium Search with Continuous Productivity Dispersion: Theory and Non-Parametric Estimation," Papers 98-07, Centre for Labour Market and Social Research, Danmark-.
  3. Moscarini, Giuseppe & Vella, Francis, 2008. "Occupational Mobility and the Business Cycle," IZA Discussion Papers 3369, Institute for the Study of Labor (IZA).
  4. repec:ese:iserwp:2006-39 is not listed on IDEAS
  5. Melvyn Coles & Carlos Carrillo-Tudela & Ken Burdett, 2008. "Human Capital Accumulation and Labor Market Equilibrium," 2008 Meeting Papers 1088, Society for Economic Dynamics.
  6. Ludo Visschers & Irina Telyukova & Guido Menzio, 2011. "Directed search over the life cycle," 2011 Meeting Papers 1360, Society for Economic Dynamics.
  7. Carlos Carrillo-Tudela, 2009. "An Equilibrium Search Model with Optimal Wage-Experience Contracts," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(1), pages 108-128, January.
  8. Bunzel, H. & Christensen, B.J. & Kiefer, N.M. & Korsholm, L., 1999. "Equilibrium Search with Human Capital Accumulation," Papers 99-11, Centre for Labour Market and Social Research, Danmark-.
  9. Joseph G. Altonji & Nicolas Williams, 2005. "Do wages rise with job seniority? A reassessment," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 58(3), pages 370-397, April.
  10. Philipp Kircher & Jan Eeckhout, 2009. "Identifying Sorting, In Theory," 2009 Meeting Papers 581, Society for Economic Dynamics.
  11. Fabien Postel-Vinay & Hélène Turon, 2010. "On-The-Job Search, Productivity Shocks, And The Individual Earnings Process," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 51(3), pages 599-629, 08.
  12. Rasmus Lentz & Dale T. Mortensen, 2005. "Productivity Growth And Worker Reallocation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(3), pages 731-749, 08.
  13. Gadi Barlevy, 2008. "Identification of Search Models using Record Statistics," Review of Economic Studies, Oxford University Press, vol. 75(1), pages 29-64.
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  15. 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.
  16. Christian Bontemps & Jean-Marc Robin & Gérard J. Van Den Berg, 2000. "Equilibrium Search with Continuous Productivity Dispersion: Theory and Nonparametric Estimation," Working Papers 249986, Institut National de la Recherche Agronomique, France.
  17. Christian Dustmann & Costas Meghir, 2005. "Wages, Experience and Seniority," Review of Economic Studies, Oxford University Press, vol. 72(1), pages 77-108.
  18. Lentz, Rasmus, 2010. "Sorting by search intensity," Journal of Economic Theory, Elsevier, vol. 145(4), pages 1436-1452, July.
  19. Postel-Vinay & Robin, 2002. "Equilibrium wage dispersion with worker and employer heterogeneity," Working Papers 155908, Institut National de la Recherche Agronomique, France.
  20. Iourii Manovskii & Marcus Hagedorn, 2011. "Search Frictions and Wage Dispersion," 2011 Meeting Papers 1195, Society for Economic Dynamics.
  21. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, December.
  22. Jacob A. Mincer, 1974. "Introduction to "Schooling, Experience, and Earnings"," NBER Chapters, in: Schooling, Experience, and Earnings, pages 1-4 National Bureau of Economic Research, Inc.
  23. Jacob A. Mincer, 1974. "Schooling, Experience, and Earnings," NBER Books, National Bureau of Economic Research, Inc, number minc74-1, octubre-d.
  24. Guido Menzio & Shouyong Shi, 2008. "Efficient Search on the Job and the Business Cycle, Second Version," PIER Working Paper Archive 09-010, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 28 Feb 2009.
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Cited by:
  1. Bowlus, Audra J. & Liu, Huju, 2013. "The contributions of search and human capital to earnings growth over the life cycle," European Economic Review, Elsevier, vol. 64(C), pages 305-331.
  2. Tjaden, Volker & Wellschmied, Felix, 2012. "Exploring the Causes of Frictional Wage Dispersion," IZA Discussion Papers 6299, Institute for the Study of Labor (IZA).
  3. Volker Tjaden & Felix Wellschmied, 2011. "Exploring the Causes of Frictional Wage Dispersion," Bonn Econ Discussion Papers bgse04_2011, University of Bonn, Germany.

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