Efficient Job Upgrading, Search on the Job and Output Dispersion

A worker's job can be improved internally through job upgrading or externally through on-the-job search. Incorporating these internal and external job dynamics into a directed search model, I analytically characterize and quantitatively evaluate the socially efficient creation of vacancies, search and job upgrading. The analysis shows that efficient job upgrading continues throughout a worker's career and may be hump shaped over tenure. In contrast, on-the-job search is front-loaded in a worker's career and stops after a finite number of job switches. The dynamic interaction between job upgrading and on-the-job search can generate large frictional dispersion in output among identical workers. The calibrated model yields the mean-min ratio in output as 2.04, which is empirically plausible and much larger than in previous models. Both job upgrading and on-the-job search generate significant dispersion in output, although job upgrading is more potent than on-the-job search. Output dispersion depends critically on the calibrated feature that the marginal cost of a vacancy increases in the job type. If the marginal cost of a vacancy were non-increasing in the job type, the social planner would start all jobs at a high type and leave very little room for job upgrading or on-the-job search.