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On-the-job wage dynamics

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  • Smith, Eric

Abstract

This paper assesses wage setting and wage dynamics in a search and matching framework where (i) workers and firms on occasion can meet multilaterally; (ii) workers can recall previous encounters with firms; and (iii) firms cannot commit to future wages and workers cannot commit to not searching in the future. The resulting progression of wages (from firms paying just enough to keep their workers) yields a compensation structure consistent with well established but difficult to reconcile observations on pay dynamics within jobs at firms. Along with wage tenure effects, serial correlation in wage changes and wage growth are negatively correlated with initial wages.

Suggested Citation

  • Smith, Eric, 2025. "On-the-job wage dynamics," Journal of Economic Theory, Elsevier, vol. 224(C).
    • Handle: RePEc:eee:jetheo:v:224:y:2025:i:c:s0022053124001595
    DOI: 10.1016/j.jet.2024.105953
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    More about this item

    Keywords

    Wage dynamics; Stock-flow matching; No commitment; Job search;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • 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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