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Unemployment History and Frictional Wage Dispersion

Listed author(s):
  • Victor Ortego-Marti

    ()

    (Department of Economics, University of California Riverside)

This paper studies wage dispersion among identical workers in a random matching search model in which workers lose human capital during unemployment. Wage dispersion increases, as workers accept lower wages to avoid long unemployment spells. The model is an important improvement over baseline search models. It explains between a third and half of the observed residual wage dispersion. When adding on-the-job search, the model accounts for all of the residual wage dispersion and generates substantial dispersion even for high values of non-market time. The paper thus addresses the trade-off between explaining frictional wage dispersion and the cyclical behavior of unemployment.

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File URL: http://economics.ucr.edu/repec/ucr/wpaper/201402.pdf
File Function: First version, 2014
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Paper provided by University of California at Riverside, Department of Economics in its series Working Papers with number 201402.

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Date of creation: Sep 2014
Handle: RePEc:ucr:wpaper:201402
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Web page: http://economics.ucr.edu

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