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Job Search and the Age-Inequality Profile

  • Petra Marotzke

    ()

    (Department of Economics, University of Konstanz, Germany)

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    In line with earlier literature, I document a U-shaped relationship between age and wage dispersion in the U.S.. To explain this outcome, I consider a life-cycle model of labor market search with strategic wage bargaining, heterogeneous firm-worker matches, and endogenous search effort. Three factors shape the age-inequality profile of wages in the model economy: the time until retirement, match heterogeneity, and the workers’ bargaining power. Young workers switch employers often and are gradually matched to better jobs, which leads to the initial reduction in the variance of log wages. Middle-aged and older workers switch employers less frequently and have a longer search history. As workers are differently successful in the labor market, the variance of match productivities rises in the second half of the working life. The calibrated model captures the U-shape of the age-inequality profile of wages in conjunction with the hump-shaped age profile of average wages, as well as employment-to-employment transitions that decrease with age.

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    Paper provided by Department of Economics, University of Konstanz in its series Working Paper Series of the Department of Economics, University of Konstanz with number 2014-06.

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    Length: 40 pages
    Date of creation: 04 Mar 2014
    Handle: RePEc:knz:dpteco:1406
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