How Wages Respond to the Job-Finding and Job-to-Job Transition Rates: Evidence from New Zealand Administrative Data

We use administrative data from New Zealand and exploit regional variations to evaluate the predictive power for wage dynamics of the job-finding and job-to-job transition rates. We find that the job-finding rate from unemployment plays a role in describing the wage dynamics of newly hired workers even after controlling for the job-to-job transition rate. The wages of new hires are much more responsive to both transition rates than the wages of job stayers. We then distinguish between the new hires transitioning from employment (job switchers) and the new hires coming from unemployment. The wages of job switchers are primarily related to the pace of job-to-job reallocation, and less significantly, to the job-finding rate. The wages of new hires from unemployment are exclusively linked to the job-finding rate and this association is stronger at the lower half of the wage distribution. Additionally, the wages of new hires from unemployment are more responsive to the job-finding rate than the wages of job stayers. The job-to-job transition rate has no impact on the wage dynamics of job stayers once the job-finding rate and the transition rate from inactivity to employment are controlled for.