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Exploring the Causes of Frictional Wage Dispersion

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  • Tjaden, Volker
  • Wellschmied, Felix

Abstract

Standard search models are inconsistent with the amount of frictional wage dis- persion found in U.S. data. We resolve this apparent puzzle by modeling skill development (learning by doing on the job, skill loss during unemployment) and duration dependence in unemployment benefits in a random on the job search model featuring two-sided heterogeneity. The model's key parameters are calibrated using micro data on employment mobility and wages from the Survey of Income and Program Participation (SIPP). Our model is consistent with the amount of frictional wage dispersion found in the data. Skill develop- ment on the job is the most important driver behind this result. Meanwhile, firm heterogeneity never accounts for more than 20% of overall wage inequality within an age cohort.

Suggested Citation

  • Tjaden, Volker & Wellschmied, Felix, 2011. "Exploring the Causes of Frictional Wage Dispersion," Bonn Econ Discussion Papers 04/2011, University of Bonn, Bonn Graduate School of Economics (BGSE).
  • Handle: RePEc:zbw:bonedp:042011
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    References listed on IDEAS

    as
    1. Fabien Postel-Vinay & Jean-Marc Robin, 2002. "Equilibrium Wage Dispersion with Worker and Employer Heterogeneity," Econometrica, Econometric Society, vol. 70(6), pages 2295-2350, November.
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    4. Jolivet, Gregory & Postel-Vinay, Fabien & Robin, Jean-Marc, 2006. "The empirical content of the job search model: Labor mobility and wage distributions in Europe and the US," European Economic Review, Elsevier, vol. 50(4), pages 877-907, May.
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    Cited by:

    1. Marotzke, Petra, 2013. "Job Search and the Age-Inequality Profile," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 80007, Verein für Socialpolitik / German Economic Association.
    2. Tamas Papp, 2013. "Frictional wage dispersion with Bertrand competition: an assessment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(3), pages 540-552, July.

    More about this item

    Keywords

    Frictional wage dispersion; Search model; Heterogeneity;

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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