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Job Search, Human Capital and Wage Inequality

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  • Carrillo-Tudela, Carlos

    (University of Essex)

Abstract

The objective of this paper is to construct and quantitatively assess an equilibrium search model with on-the-job search and general human capital accumulation. In the model workers enter the labour market with different abilities and firms differ in their productivities. Wages are dispersed because of search frictions and workers' productivity differentials. The model generates a simple (log) wage variance decomposition that is used to measure the importance of firm and worker productivity differentials, frictional wage dispersion and workers' sorting dynamics. I calibrate the model using a sample of young workers for the UK. I show that wage inequality among low skilled workers is mostly due to differences in their productivities. Among medium skilled workers frictional wage dispersion and sorting dynamics are, together, as important as workers' productivity differentials. Differences in firms' productivities are also an important source of wage inequality for both skill groups and account for a large share of frictional wage dispersion. Quantitatively the model is able to reproduce the observed cross-sectional wage distribution, the average wage-experience profile and the amount of frictional wage dispersion observed in the data as measured by the Mean-min ratio.

Suggested Citation

  • Carrillo-Tudela, Carlos, 2012. "Job Search, Human Capital and Wage Inequality," IZA Discussion Papers 6949, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp6949
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    References listed on IDEAS

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    Cited by:

    1. Sebastien Menard, 2019. "The impact of benefit sanctions on equilibrium wage dispersion and job vacancies," TEPP Working Paper 2019-08, TEPP.
    2. Schwartz, J., 2015. "Optimal unemployment insurance: When search takes effort and money," Labour Economics, Elsevier, vol. 36(C), pages 1-17.
    3. Bowlus, Audra J. & Liu, Huju, 2013. "The contributions of search and human capital to earnings growth over the life cycle," European Economic Review, Elsevier, vol. 64(C), pages 305-331.
    4. Xiao, Chaoqun & Tang, Wansheng & Zhao, Ruiqing & Zhou, Chi, 2013. "Equilibrium search with heterogeneous firms, workers and endogenous human capital," MPRA Paper 52136, University Library of Munich, Germany.
    5. Tjaden, Volker & Wellschmied, Felix, 2011. "Exploring the Causes of Frictional Wage Dispersion," Bonn Econ Discussion Papers 04/2011, University of Bonn, Bonn Graduate School of Economics (BGSE).
    6. Ross Doppelt, 2019. "Skill Flows: A Theory of Human Capital and Unemployment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 31, pages 84-122, January.

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    More about this item

    Keywords

    job search; human capital accumulation; wage dispersion; turnover;
    All these keywords.

    JEL classification:

    • 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
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets

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