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Job Search, Human Capital and Wage Inequality

  • Carlos Carrillo-Tudela

    (University of Leicester.)

The objective of this paper is to construct and quantitatively assess an equilibrium search model with on-the-job search and human capital accumulation. In the model workers enter the labour market with different abilities and firms differ in their labour productivities. Wages are disperse because of search frictions (firms pay workers of the same productivity different wages) and workers' productivity differentials (workers of different productivities earn different wages). Further, there is positive sorting between workers and firms and this increases wage dispersion. The model generates a simple (log) wage variance decomposition that is used to measure the importance of productivity differentials, search frictions and sorting dynamics between workers and firms. I calibrate the model to match spell durations and wage variation of a (relative) homogeneous sample of workers using UK household level data. I show that wage variation due to productivity difference explains around 60 percent, search frictions around 25 percent and sorting dynamics the remainder 15 percent. The model is then used to analyse the average wage-experience profile of workers and shows the importance of human capital accumulation in shaping such a profile.

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Paper provided by Society for Economic Dynamics in its series 2010 Meeting Papers with number 723.

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Date of creation: 2010
Date of revision:
Handle: RePEc:red:sed010:723
Contact details of provider: Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA
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  8. 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.
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  14. Grégory Jolivet & Fabien Postel-Vinay & Jean-Marc Robin, 2006. "The Empirical Content of the Job Search Model: Labor Mobility and Wage Distributions in Europe and the U.S," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00308803, HAL.
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  16. Giovanni L. Violante & Per Krusell & Andreas Hornstein, 2006. "Frictional wage dispersion in search models: a quantitative assessment," Working Paper 06-07, Federal Reserve Bank of Richmond.
  17. Abowd, J.M. & Kramarz, F. & Margolis, D.N., 1995. "High-Wage Workers and High-Wage Firms," Cahiers de recherche 9503, Universite de Montreal, Departement de sciences economiques.
  18. Christian Dustmann & Costas Meghir, 2005. "Wages, Experience and Seniority," Review of Economic Studies, Oxford University Press, vol. 72(1), pages 77-108.
  19. Christian Bontemps & Jean-Marc Robin & Gérard J. Van den Berg, 1999. "An Empirical Equilibrium Job Search Model With Search on the Job and Heterogeneous Workers and Firms," Post-Print hal-00357757, HAL.
  20. Kenneth Burdett & Carlos Carrillo‐Tudela & Melvyn G. Coles, 2011. "Human Capital Accumulation And Labor Market Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(3), pages 657-677, 08.
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  24. Victor Ortego-Marti, 2014. "Unemployment History and Frictional Wage Dispersion," Working Papers 201402, University of California at Riverside, Department of Economics.
  25. Carlos Carrillo-Tudela, 2009. "An Equilibrium Search Model with Optimal Wage-Experience Contracts," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(1), pages 108-128, January.
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