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Endogenous On-the-job Search and Frictional Wage Dispersion

  • Matthias S. Hertweck

    ()

    (University of Basel)

This paper addresses the large degree of frictional wage dispersion in US data. The standard job matching model without on-the-job search cannot replicate this pattern. With on-the-job search, however, unemployed job searchers are more will- ing to accept low wage offers since they can continue to seek for better employment opportunities. This explains why observably identical workers may be paid very differently. Therefore, we examine the quantitative implications of on-the-job search in a stochastic job matching model. Our key result is that the inclusion of variable on-the-job search increases the degree of frictional wage dispersion by an order of a magnitude.

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Paper provided by Faculty of Business and Economics - University of Basel in its series Working papers with number 2010/02.

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Date of creation: 2010
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Handle: RePEc:bsl:wpaper:2010/02
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  1. Murat Tasci, 2006. "On-the-Job Search and Labor Market Reallocation," 2006 Meeting Papers 333, Society for Economic Dynamics.
  2. Pierre Cahuc & Fabien Postel-Vinay & Jean-Marc Robin, 2006. "Wage Bargaining with On-the-Job Search: Theory and Evidence," Econometrica, Econometric Society, vol. 74(2), pages 323-364, 03.
  3. Menzio, Guido & Shi, Shouyong, 2010. "Block recursive equilibria for stochastic models of search on the job," Journal of Economic Theory, Elsevier, vol. 145(4), pages 1453-1494, July.
  4. Michael U. Krause & Thomas A. Lubik, 2006. "On-the-Job Search and the Cyclical Dynamics of the Labor Market," Computing in Economics and Finance 2006 455, Society for Computational Economics.
  5. Julia Angerhausen & Christian Bayer & Burkhard Hehenkamp, 2006. "Strategic Unemployment," Discussion Papers in Economics 06_02, University of Dortmund, Department of Economics.
  6. James Costain & Michael Reiter, 2005. "Business Cycles, Unemployment Insurance and the Calibration of Matching Models," Working Papers 215, Barcelona Graduate School of Economics.
  7. Pissarides, Christopher A, 1985. "Short-run Equilibrium Dynamics of Unemployment Vacancies, and Real Wages," American Economic Review, American Economic Association, vol. 75(4), pages 676-90, September.
  8. Tauchen, George, 1986. "Finite state markov-chain approximations to univariate and vector autoregressions," Economics Letters, Elsevier, vol. 20(2), pages 177-181.
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