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Job Search, Human Capital and Wage Inequality

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  • Carlos Carrillo-Tudela

    (University of Leicester.)

Abstract

The objective of this paper is to construct and quantitatively assess an equilibrium search model with on-the-job search and human capital accumulation. In the model workers enter the labour market with different abilities and firms differ in their labour productivities. Wages are disperse because of search frictions (firms pay workers of the same productivity different wages) and workers' productivity differentials (workers of different productivities earn different wages). Further, there is positive sorting between workers and firms and this increases wage dispersion. The model generates a simple (log) wage variance decomposition that is used to measure the importance of productivity differentials, search frictions and sorting dynamics between workers and firms. I calibrate the model to match spell durations and wage variation of a (relative) homogeneous sample of workers using UK household level data. I show that wage variation due to productivity difference explains around 60 percent, search frictions around 25 percent and sorting dynamics the remainder 15 percent. The model is then used to analyse the average wage-experience profile of workers and shows the importance of human capital accumulation in shaping such a profile.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2010 Meeting Papers with number 723.

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Date of creation: 2010
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Handle: RePEc:red:sed010:723

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References

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  1. Joseph G. Altonji & Nicolas Williams, 1997. "Do Wages Rise with Job Seniority? A Reassessment," NBER Working Papers 6010, National Bureau of Economic Research, Inc.
  2. Jacob A. Mincer, 1974. "Schooling, Experience, and Earnings," NBER Books, National Bureau of Economic Research, Inc, number minc74-1, May.
  3. 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.
  4. Ludo Visschers & Irina Telyukova & Guido Menzio, 2011. "Directed search over the life cycle," 2011 Meeting Papers 1360, Society for Economic Dynamics.
  5. Fabien Postel-Vinay & Jean-Marc Robin, 2002. "Equilibrium Wage Dispersion with Worker and Employer Heterogeneity," Econometrica, Econometric Society, vol. 70(6), pages 2295-2350, November.
  6. 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.
  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. Andreas Hornstein & Per Krusell & Giovanni L. Violante, 2011. "Frictional Wage Dispersion in Search Models: A Quantitative Assessment," American Economic Review, American Economic Association, vol. 101(7), pages 2873-98, December.
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  29. Coles, Melvyn G. & Mortensen, Dale T., 2012. "Equilibrium labour turnover, firm growth and unemployment," ISER Working Paper Series 2012-07, Institute for Social and Economic Research.
  30. 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.
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Cited by:
  1. Volker Tjaden & Felix Wellschmied, 2011. "Exploring the Causes of Frictional Wage Dispersion," Bonn Econ Discussion Papers bgse04_2011, University of Bonn, Germany.
  2. Xiao, Chaoqun & Tang, Wansheng & Zhao, Ruiqing & Zhou, Chi, 2013. "Equilibrium search with heterogeneous firms, workers and endogenous human capital," MPRA Paper 52136, University Library of Munich, Germany.
  3. Audra J. Bowlus & Huju Liu, 2012. "The Contributions of Search and Human Capital to Earnings Growth Over the Life Cycle," University of Western Ontario, CIBC Centre for Human Capital and Productivity Working Papers 20122, University of Western Ontario, CIBC Centre for Human Capital and Productivity.
  4. Tjaden, Volker & Wellschmied, Felix, 2012. "Exploring the Causes of Frictional Wage Dispersion," IZA Discussion Papers 6299, Institute for the Study of Labor (IZA).

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