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On-the-job search and the productivity-wage gap

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  • Acharya, Sushant
  • Wee, Shu Lin

Abstract

We examine how worker and firm on-the-job search have differential impacts on the productivity-wage gap. While an increase in both worker and firm on-the-job search raise productivity, they have opposing effects on wages. Increased worker on-the-job search raises workers’ outside options, allowing them to demand higher wages. Increased firm on-the-job search improves firms’ bargaining position relative to workers’ by raising job insecurity and the wedge between hiring and meeting rates, allowing firms to pass-through a smaller share of productivity to wages and enlarging the productivity-wage gap. Quantitatively, the model accounts for about a quarter of the observed divergence in the US productivity-wage gap between 1990 and 2017.

Suggested Citation

  • Acharya, Sushant & Wee, Shu Lin, 2025. "On-the-job search and the productivity-wage gap," European Economic Review, Elsevier, vol. 179(C).
    • Handle: RePEc:eee:eecrev:v:179:y:2025:i:c:s0014292125001771
    DOI: 10.1016/j.euroecorev.2025.105127
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    Keywords

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    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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