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Unemployment history and frictional wage dispersion

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  • Ortego-Marti, Victor

Abstract

Recent evidence shows that baseline search models struggle to match the observed levels of wage dispersion. This paper studies a random matching search model with human capital losses during unemployment. Wage dispersion increases, as workers accept lower wages to avoid long unemployment spells. The model explains between a third and half of the observed residual wage dispersion. When adding on-the-job search, the model accounts for all of the residual wage dispersion and generates substantial dispersion even for high values of non-market time. The paper thus addresses the trade-off between explaining frictional wage dispersion and the cyclical behavior of unemployment.

Suggested Citation

  • Ortego-Marti, Victor, 2016. "Unemployment history and frictional wage dispersion," Journal of Monetary Economics, Elsevier, vol. 78(C), pages 5-22.
  • Handle: RePEc:eee:moneco:v:78:y:2016:i:c:p:5-22
    DOI: 10.1016/j.jmoneco.2015.12.002
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    Cited by:

    1. Urmee Khan & Maxwell Stinchcombe, 2012. "The Virtues of Hesitation," Working Papers 201425, University of California at Riverside, Department of Economics, revised Sep 2014.
    2. Carlos Carrillo-Tudela, 2010. "Job Search, Human Capital and Wage Inequality," 2010 Meeting Papers 723, Society for Economic Dynamics.
    3. Ortego-Marti, Victor, 2017. "Differences in skill loss during unemployment across industries and occupations," Economics Letters, Elsevier, vol. 161(C), pages 31-33.
    4. Ortego-Marti, Victor, 2017. "Loss of skill during unemployment and TFP differences across countries," European Economic Review, Elsevier, vol. 100(C), pages 215-235.
    5. Ken Burdett & Carlos Carrillo-Tudela & Melvyn Coles, 2016. "Wage Inequality: A Structural Decomposition," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 19, pages 20-37, January.
    6. Laureys, Lien, 2014. "The cost of human capital depreciation during unemployment," Bank of England working papers 505, Bank of England.
    7. Ortego-Marti, Victor, 2017. "The Cyclical Behavior Of Unemployment And Vacancies With Loss Of Skills During Unemployment," Macroeconomic Dynamics, Cambridge University Press, vol. 21(06), pages 1277-1304, September.
    8. Laureys, Lien, 2014. "The cost of human capital depreciation during unemployment," LSE Research Online Documents on Economics 86337, London School of Economics and Political Science, LSE Library.
    9. Ken Burdett & Carlos Carrillo-Tudela & Melvyn Coles, 2015. "Wage Inequality," Working Papers 2015-42, Peruvian Economic Association.
    10. Masters, Adrian, 2016. "On the firms’ component of wage dispersion: Endogenous effort versus search frictions," Labour Economics, Elsevier, vol. 42(C), pages 213-220.

    More about this item

    Keywords

    Search and matching; Frictional wage dispersion; Unemployment history; Skill loss; Unemployment volatility;

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment

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