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Job Search and the Age-Inequality Profile

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  • Marotzke, Petra
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    Abstract

    Empirical studies find that the age-variance profile of wages is U-shaped. The objective of this paper is to explore the driving forces of the U-shape in a model with search frictions. I introduce endogenous search effort and a fixed retirement age into Cahuc, Postel-Vinay, and Robin s (2006) strategic wage bargaining model with counteroffers and heterogeneous firm-worker matches. Three factors shape the age-inequality profile of wages in the model economy: the time horizon before retirement, match heterogeneity, and the worker's bargaining power. Because the working life is finite, the optimal search effort decreases with age. Furthermore, the probability of meeting an outside firm with a higher match quality decreases in the quality of the current match. The bargaining power parameter influences the worker's reservation wage. The model can reproduce the U-shape of the age-inequality profile of wages if the bargaining power of workers is sufficiently high. Furthermore, the model captures the shapes of the empirically observed age profiles of average wages, the unemployment rate, the unemployment to employment transition rate, and the employment to employment transition rate. --

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    Bibliographic Info

    Paper provided by Verein für Socialpolitik / German Economic Association in its series Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order with number 80007.

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    Date of creation: 2013
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    Handle: RePEc:zbw:vfsc13:80007

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    1. Lentz, Rasmus, 2010. "Sorting by search intensity," Journal of Economic Theory, Elsevier, Elsevier, vol. 145(4), pages 1436-1452, July.
    2. Shintaro Yamaguchi, 2006. "Job Search, Bargaining, and Wage Dynamics," ISER Discussion Paper, Institute of Social and Economic Research, Osaka University 0658, Institute of Social and Economic Research, Osaka University.
    3. Ludo Visschers & Irina Telyukova & Guido Menzio, 2011. "Directed search over the life cycle," 2011 Meeting Papers, Society for Economic Dynamics 1360, Society for Economic Dynamics.
    4. Postel-Vinay, Fabien & Robin, Jean-Marc, 2002. "Equilibrium Wage Dispersion with Worker and Employer Heterogeneity," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3548, C.E.P.R. Discussion Papers.
    5. Cahuc, Pierre & Postel-Vinay, Fabien & Robin, Jean-Marc, 2003. "Wage Bargaining with On-The-Job Search: Theory and Evidence," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4154, C.E.P.R. Discussion Papers.
    6. Jesper Bagger & François Fontaine & Fabien Postel-Vinay & Jean-Marc Robin, 2011. "Tenure, Experience, Human Capital and Wages: A Tractable Equilibrium Search Model of Wage Dynamics," Sciences Po publications info:hdl:2441/eu4vqp9ompq, Sciences Po.
    7. Jung, Philip & Kuhn, Moritz, 2012. "Earnings Losses and Labor Mobility over the Lifecycle," IZA Discussion Papers 6835, Institute for the Study of Labor (IZA).
    8. Jean-Olivier Hairault & Francois Langot & Thepthida Sopraseuth, 2010. "Distance to Retirement and Older Workers' Employment: The Case for Delaying the Retirement Age," Journal of the European Economic Association, MIT Press, MIT Press, vol. 8(5), pages 1034-1076, 09.
    9. Chéron, Arnaud & Hairault, Jean-Olivier & Langot, François, 2008. "Life-Cycle Equilibrium Unemployment," IZA Discussion Papers 3396, Institute for the Study of Labor (IZA).
    10. Hahn, Volker, 2009. "Search, unemployment, and age," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 33(6), pages 1361-1378, June.
    11. Jacob A. Mincer, 1974. "Introduction to "Schooling, Experience, and Earnings"," NBER Chapters, National Bureau of Economic Research, Inc, in: Schooling, Experience, and Earnings, pages 1-4 National Bureau of Economic Research, Inc.
    12. Christensen, Bent Jesper & Mortensen, Dale & Neumann, George R. & Werwatz, Axel, 2000. "On the job search and the wage distribution," SFB 373 Discussion Papers 2000,108, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
    13. Jacob A. Mincer, 1974. "Schooling, Experience, and Earnings," NBER Books, National Bureau of Economic Research, Inc, National Bureau of Economic Research, Inc, number minc74-1.
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    Cited by:
    1. Karsten Wasiluk, 2014. "Technology Adoption and Demographic Change," Working Paper Series of the Department of Economics, University of Konstanz, Department of Economics, University of Konstanz 2014-05, Department of Economics, University of Konstanz.

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