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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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References

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  1. Harry J. Holzer, 1987. "Job search by employed and unemployed youth," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 40(4), pages 601-611, July.
  2. Namkee Ahn & José Ignacio García-Pérez, 2002. "Unemployment duration and workers' wage aspirations in Spain," Spanish Economic Review, Springer, Springer, vol. 4(2), pages 103-118.
  3. Bruce D. Meyer, 1988. "Unemployment Insurance And Unemployment Spells," NBER Working Papers 2546, National Bureau of Economic Research, Inc.
  4. Dolado, J.J. & Jimeno, J.F., 1995. "Why Is Spanish Unemployment so High?," Papers, Centro de Estudios Monetarios Y Financieros- 9515, Centro de Estudios Monetarios Y Financieros-.
  5. Alfonso Rosolia & Gilles Saint Paul, 1998. "The effect of unemployment spells on subsequent wages in Spain," Economics Working Papers, Department of Economics and Business, Universitat Pompeu Fabra 295, Department of Economics and Business, Universitat Pompeu Fabra.
  6. Silvio Rendón, 2001. "Job Creation under Liquidity Constraints: the Spanish Case," Banco de Espa�a Working Papers, Banco de Espa�a 0101, Banco de Espa�a.
  7. Silvio Rendón, 2001. "Job Creation under Liquidity Constraints: the Spanish Case," Banco de Espa�a Working Papers, Banco de Espa�a 0101, Banco de Espa�a.
  8. Pierre Cahuc & Fabien Postel-Vinay & Jean-Marc Robin, 2003. "Wage bargaining with on-the-job search : theory and evidence," Research Unit Working Papers, Laboratoire d'Economie Appliquee, INRA 0212, Laboratoire d'Economie Appliquee, INRA.
  9. Abraham, Katharine G & Farber, Henry S, 1987. "Job Duration, Seniority, and Earnings," American Economic Review, American Economic Association, American Economic Association, vol. 77(3), pages 278-97, June.
  10. Flinn, C. & Heckman, J., 1982. "New methods for analyzing structural models of labor force dynamics," Journal of Econometrics, Elsevier, Elsevier, vol. 18(1), pages 115-168, January.
  11. 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., John Wiley & Sons, Ltd., vol. 21(2), pages 245-272.
  12. Mortensen, Dale T., 1987. "Job search and labor market analysis," Handbook of Labor Economics, Elsevier, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 2, chapter 15, pages 849-919 Elsevier.
  13. Pissarides, C. & Wadsworth, J., 1988. "On-The-Job Search: Some Empirical Evidence," Papers, London School of Economics - Centre for Labour Economics 317, London School of Economics - Centre for Labour Economics.
  14. Jackman, R & Layard, Richard & Pissarides, C, 1989. "On Vacancies," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, Department of Economics, University of Oxford, vol. 51(4), pages 377-94, November.
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Cited by:
  1. Jahn, Elke J. & Wagner, Thomas, 2008. "Do Targeted Hiring Subsidies and Profiling Techniques Reduce Unemployment?," IZA Discussion Papers 3768, Institute for the Study of Labor (IZA).

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