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Unemployment History and Frictional Wage Dispersion

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  • Victor Ortego-Marti

    (Department of Economics, University of California Riverside)

Abstract

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.

Suggested Citation

  • Victor Ortego-Marti, 2014. "Unemployment History and Frictional Wage Dispersion," Working Papers 201402, University of California at Riverside, Department of Economics.
    • Handle: RePEc:ucr:wpaper:201402
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    Cited by:

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    2. Naval, Joaquín & Silva, José I. & Vázquez-Grenno, Javier, 2020. "Employment effects of on-the-job human capital acquisition," Labour Economics, Elsevier, vol. 67(C).
    3. Srhoj Stjepan & Zilic Ivan, 2021. "“Fine...I’ll do it myself”: Lessons from self-employment grants in a long recession period," IZA Journal of Labor Policy, Sciendo & Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 11(1), pages 1-32, May.
    4. Paul Jackson & Victor Ortego-Marti, 2020. "Skill Loss during Unemployment and the Scarring Effects of the COVID-19 Pandemic," Working Papers 202020, University of California at Riverside, Department of Economics.
    5. Sebastien Menard, 2019. "The impact of benefit sanctions on equilibrium wage dispersion and job vacancies," TEPP Working Paper 2019-08, TEPP.
    6. Urmee Khan & Maxwell Stinchcombe, 2012. "The Virtues of Hesitation," Working Papers 201425, University of California at Riverside, Department of Economics, revised Sep 2014.
    7. Carlos Carrillo-Tudela, 2010. "Job Search, Human Capital and Wage Inequality," 2010 Meeting Papers 723, Society for Economic Dynamics.
    8. Ken Burdett & Carlos Carrillo-Tudela & Melvyn Coles, 2015. "Wage Inequality," Working Papers 42, Peruvian Economic Association.
    9. Ortego-Marti, Victor, 2017. "Differences in skill loss during unemployment across industries and occupations," Economics Letters, Elsevier, vol. 161(C), pages 31-33.
    10. Ortego-Marti, Victor, 2017. "Loss of skill during unemployment and TFP differences across countries," European Economic Review, Elsevier, vol. 100(C), pages 215-235.
    11. Ken Burdett & Carlos Carrillo-Tudela & Melvyn Coles, 2016. "Wage Inequality: A Structural Decomposition," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 19, pages 20-37, January.
    12. Lien Laureys, 2021. "The Cost of Human Capital Depreciation During Unemployment," The Economic Journal, Royal Economic Society, vol. 131(634), pages 827-850.
    13. Ortego-Marti, Victor, 2017. "The Cyclical Behavior Of Unemployment And Vacancies With Loss Of Skills During Unemployment," Macroeconomic Dynamics, Cambridge University Press, vol. 21(6), pages 1277-1304, September.
    14. Prein, Timm, 2019. "Persistent Unemployment, Sovereign Debt Crises, and the Impact of Haircuts," VfS Annual Conference 2019 (Leipzig): 30 Years after the Fall of the Berlin Wall - Democracy and Market Economy 203654, Verein für Socialpolitik / German Economic Association, revised 2019.
    15. 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.
    16. Griffy, Benjamin & Rabinovich, Stanislav, 2023. "Worker selectivity and fiscal externalities from unemployment insurance," European Economic Review, Elsevier, vol. 156(C).
    17. Ioannis Kospentaris, 2021. "Unobserved Heterogeneity and Skill Loss in a Structural Model of Duration Dependence," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 39, pages 280-303, January.
    18. Kenneth Burdett & Carlos Carrillo-Tudela & Melvyn Coles, 2020. "The Cost of Job Loss," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 87(4), pages 1757-1798.
    19. Shisham Adhikari & Athanasios Geromichalos & Ioannis Kospentaris, 2023. "How much work experience do you need to get your first job? The macroeconomic implications of bias against labor market entrants," Working Papers 357, University of California, Davis, Department of Economics.
    20. Guimarães, Luis & Lourenço, Diogo, 2024. "The Imperfections of Conditional Programs and the Case for Universal Basic Income," MPRA Paper 119964, University Library of Munich, Germany.
    21. Masters, Adrian, 2016. "On the firms’ component of wage dispersion: Endogenous effort versus search frictions," Labour Economics, Elsevier, vol. 42(C), pages 213-220.
    22. Jake Bradley & Lukas Mann, 2023. "Learning about labour markets," Discussion Papers 2023/01, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).

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    More about this item

    Keywords

    Job search; search and matching; wage dispersion; unemployment history;
    All these keywords.

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment

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