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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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    Citations

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    Cited by:

    1. Urmee Khan & Maxwell Stinchcombe, 2012. "The Virtues of Hesitation," Working Papers 201425, University of California at Riverside, Department of Economics, revised Sep 2014.
    2. Carlos Carrillo-Tudela, 2010. "Job Search, Human Capital and Wage Inequality," 2010 Meeting Papers 723, Society for Economic Dynamics.
    3. Ortego-Marti, Victor, 2017. "Differences in skill loss during unemployment across industries and occupations," Economics Letters, Elsevier, vol. 161(C), pages 31-33.
    4. Ortego-Marti, Victor, 2017. "Loss of skill during unemployment and TFP differences across countries," European Economic Review, Elsevier, vol. 100(C), pages 215-235.
    5. 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.
    6. Laureys, Lien, 2014. "The cost of human capital depreciation during unemployment," Bank of England working papers 505, Bank of England.
    7. Ortego-Marti, Victor, 2017. "The Cyclical Behavior Of Unemployment And Vacancies With Loss Of Skills During Unemployment," Macroeconomic Dynamics, Cambridge University Press, vol. 21(06), pages 1277-1304, September.
    8. Laureys, Lien, 2014. "The cost of human capital depreciation during unemployment," LSE Research Online Documents on Economics 86337, London School of Economics and Political Science, LSE Library.
    9. Ken Burdett & Carlos Carrillo-Tudela & Melvyn Coles, 2015. "Wage Inequality," Working Papers 2015-42, Peruvian Economic Association.
    10. Masters, Adrian, 2016. "On the firms’ component of wage dispersion: Endogenous effort versus search frictions," Labour Economics, Elsevier, vol. 42(C), pages 213-220.

    More about this item

    Keywords

    Job search; search and matching; wage dispersion; unemployment history;

    JEL classification:

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

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