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Unemployment history and frictional wage dispersion

Listed author(s):
  • Ortego-Marti, Victor

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.

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Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 78 (2016)
Issue (Month): C ()
Pages: 5-22

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Handle: RePEc:eee:moneco:v:78:y:2016:i:c:p:5-22
DOI: 10.1016/j.jmoneco.2015.12.002
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505566

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