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

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  • Yolanda Rebollo Sanz

    ()
    (Department of Economics, Universidad Pablo de Olavide)

  • José Ignacio García-Pérez

    ()
    (Department of Economics, Universidad Pablo de Olavide)

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 and on-the-job search. Besides we model the value of leisure as a function of the previous wage. We present a semi-structural estimation using data on employment and wages for men 20 to 60 years old from the European Community Household Panel (Spain, Germany, France and Portugal). The estimated parameters from the model are then used to identify the sources of the wage loss associated with unemployment. German and Spanish workers tend to suffer larger wage penalties than their French and Portuguese counterparts. Wage losses in Germany are mainly related to better wage opportunities when employed. In Spain wage losses tend to remain longer since on the job wage growth is lower. We also evaluate the effect of the Unemployment Benefit system on wage changes after unemployment and find 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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Bibliographic Info

Paper provided by Universidad Pablo de Olavide, Department of Economics in its series Working Papers with number 06.26.

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Length: 38 pages
Date of creation: Oct 2006
Date of revision:
Handle: RePEc:pab:wpaper:06.26

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Keywords: Semi-structural estimation; wage mobility; job mobility; search models;

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  1. Katharine G. Abraham & Henry S. Farber, 1986. "Job Duration, Seniority and Earnings," Working papers 407, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Pierre Cahuc & Fabien Postel-Vinay & Jean-Marc Robin, 2003. "Wage bargaining with on-the-job search : theory and evidence," Research Unit Working Papers 0212, Laboratoire d'Economie Appliquee, INRA.
  3. Flinn, C. & Heckman, J., 1982. "New methods for analyzing structural models of labor force dynamics," Journal of Econometrics, Elsevier, vol. 18(1), pages 115-168, January.
  4. Jackman, R & Layard, Richard & Pissarides, C, 1989. "On Vacancies," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 51(4), pages 377-94, November.
  5. Bruce D. Meyer, 1991. "Unemployment Insurance And Unemployment Spells," NBER Working Papers 2546, National Bureau of Economic Research, Inc.
  6. Silvio Rendón, 2001. "Job Creation under Liquidity Constraints: the Spanish Case," Banco de Espa�a Working Papers 0101, Banco de Espa�a.
  7. 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., vol. 21(2), pages 245-272.
  8. Alfonso Rosolia & Gilles Saint Paul, 1998. "The effect of unemployment spells on subsequent wages in Spain," Economics Working Papers 295, Department of Economics and Business, Universitat Pompeu Fabra.
  9. Silvio Rendón, 2001. "Job Creation under Liquidity Constraints: the Spanish Case," Banco de Espa�a Working Papers 0101, Banco de Espa�a.
  10. Namkee Ahn & J. Ignacio García-Pérez, . "Unemployment duration and worker's wage aspiration in Spain," Studies on the Spanish Economy 58, FEDEA.
  11. Pissarides, C. & Wadsworth, J., 1988. "On-The-Job Search: Some Empirical Evidence," Papers 317, London School of Economics - Centre for Labour Economics.
  12. Dolado, J.J. & Jimeno, J.F., 1995. "Why Is Spanish Unemployment so High?," Papers 9515, Centro de Estudios Monetarios Y Financieros-.
  13. Mortensen, Dale T., 1987. "Job search and labor market analysis," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 2, chapter 15, pages 849-919 Elsevier.
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Cited by:
  1. Jahn, Elke J. & Wagner, Thomas, 2008. "Do Targeted Hiring Subsidies and Profiling Techniques Reduce Unemployment?," Working Papers 08-19, University of Aarhus, Aarhus School of Business, Department of Economics.

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