Unemployment risk and wage differentials
AbstractWorkers in less secure jobs are often paid less than identical-looking workers in more secure jobs. We show that this lack of compensating differentials for unemployment risk can arise in equilibrium when all workers are identical, and ﬁrms differ, but do so only in offered job security (the probability that the worker is not sent into unemployment). In a setting where workers search on and off the job, wages paid increase with job security for at least all ﬁrms in the risky tail of the distribution of ﬁrm-level unemployment risk. As a result, unemployment spells become persistent for low-wage and unemployed workers, a seeming pattern of ‘unemployment scarring’, that is created entirely by ﬁrm heterogeneity alone. Higher in the wage distribution, workers can take wage cuts to move to more stable employment.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 36907.
Date of creation: Jan 2012
Date of revision:
Unemployment risk; Wage Differentials; Unemployment Scarring;
Other versions of this item:
- J63 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Turnover; Vacancies; Layoffs
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
- J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-03-08 (All new papers)
- NEP-DGE-2012-03-08 (Dynamic General Equilibrium)
- NEP-LAB-2012-03-08 (Labour Economics)
- NEP-LMA-2012-03-08 (Labor Markets - Supply, Demand, & Wages)
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