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Job Search, Bargaining, and Wage Dynamics

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  • Shintaro Yamaguchi

    () (Economics University of Wisconsin-Madison)

Abstract

What are the sources of rapid wage growth during a worker's early career? To address this question, I construct and estimate a model of strategic wage bargaining with on-the-job search to explore three different components of wages: general human capital, match-specific capital, and outside option. Workers search for alternative job opportunities on the job and accumulate human capital through learning-by-doing. As the workers find better job opportunities, the current employer has to compete with outside firms to retain them. This between-firm competition improves the outside option value of the worker, which results in wage growth on the job even when productivity remains the same. The model is estimated by a simulated minimum distance estimator and data from the NLSY 79. The parameter estimates are used to simulate counterfactuals. The results indicate that the improved value of outside option raises wages of ten-year-experienced workers by 13%, which accounts for about a quarter of the wage growth during the first ten years of career. I also find that human capital accumulation affects wage profile not only because it directly changes labor productivity, but also because it alters job search behavior due to low future productivity

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 54.

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Date of creation: 03 Dec 2006
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Handle: RePEc:red:sed006:54

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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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Keywords: Job Search; Bargaining; Age-earning profile; Structural estimation;

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References

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Cited by:
  1. Rasmus Lentz & Jesper Bagger, 2009. "An Empirical Model of Wage Dispersion with Sorting," 2009 Meeting Papers 964, Society for Economic Dynamics.
  2. Luca Flabbi and James Mabli, 2012. "Household Search or Individual Search: Does It Matter? Evidence from Lifetime Inequality Estimates," Working Papers gueconwpa~12-12-03, Georgetown University, Department of Economics.
  3. Gielen, Anne & van Ours, Jan C, 2006. "Why Do Worker-Firm Matches Dissolve?," CEPR Discussion Papers 5739, C.E.P.R. Discussion Papers.
  4. Julien Prat, 2006. "The Rate of Learning-by-Doing: Estimates from a Search-Matching Model," 2006 Meeting Papers 647, Society for Economic Dynamics.
  5. Carlos Carrillo-Tudela, 2012. "Job Search, Human Capital and Wage Inequality," CESifo Working Paper Series 3979, CESifo Group Munich.
  6. Danny Leung & Alexander Ueberfeldt, 2008. "Human Capital Risk and the Firmsize Wage Premium," Working Papers 08-33, Bank of Canada.
  7. Paul Sullivan & Ted To, 2011. "Search and Non-Wage Job Characteristics," Working Papers 449, U.S. Bureau of Labor Statistics.
  8. Gielen, Anne C. & van Ours, Jan C., 2010. "Layoffs, quits and wage negotiations," Economics Letters, Elsevier, vol. 109(2), pages 108-111, November.
  9. Robert Orlowski & Regina T. Riphahn, 2011. "Lohnentwicklung im Lebenszyklus - Eine Analyse von Ausmaß, Begründung und Heterogenität von Lohnsteigerungen," Working Papers 096, Bavarian Graduate Program in Economics (BGPE).
  10. Ken Burdett & Melvyn Coles, 2010. "Tenure and Experience Effects on Wages: A Theory," CESifo Working Paper Series 3203, CESifo Group Munich.

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