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Job Search, Bargaining, and Wage Dynamics

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  • Shintaro Yamaguchi

Abstract

What are the sources of rapid wage growth during a worker's early career? To address this question, I construct and estimate a model of strategic wage bargaining with on-the-job search to explore three different components of wages: general human capital, match-specific capital, and bargaining position. Workers search for alternative job opportunities on the job and accumulate human capital through learning-by-doing. As the workers find better job opportunities, the current employer has to compete with outside firms to retain them. This between-firm competition improves the outside option value of the worker, which results in wage growth on the job even when productivity remains the same. The model is estimated by a simulated minimum distance estimator and data from the NLSY 79. The parameter estimates are used to simulate counterfactuals. Through these simulations I find that only 60% of the observed wage growth reflects the accumulation of general human capital. The growth match-specific capital through job changes accounts for about 20%. The improved bargaining position explains the remaining 20% of the wage growth. The results suggest that labor market frictions explain a larger part of wage growth than previously considered in the literature.

Suggested Citation

  • Shintaro Yamaguchi, 2006. "Job Search, Bargaining, and Wage Dynamics," ISER Discussion Paper 0658, Institute of Social and Economic Research, Osaka University.
  • Handle: RePEc:dpr:wpaper:0658
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    More about this item

    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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