Job Search, Human Capital and Wage Inequality

No 6949, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: The objective of this paper is to construct and quantitatively assess an equilibrium search model with on-the-job search and general human capital accumulation. In the model workers enter the labour market with different abilities and firms differ in their productivities. Wages are dispersed because of search frictions and workers' productivity differentials. The model generates a simple (log) wage variance decomposition that is used to measure the importance of firm and worker productivity differentials, frictional wage dispersion and workers' sorting dynamics. I calibrate the model using a sample of young workers for the UK. I show that wage inequality among low skilled workers is mostly due to differences in their productivities. Among medium skilled workers frictional wage dispersion and sorting dynamics are, together, as important as workers' productivity differentials. Differences in firms' productivities are also an important source of wage inequality for both skill groups and account for a large share of frictional wage dispersion. Quantitatively the model is able to reproduce the observed cross-sectional wage distribution, the average wage-experience profile and the amount of frictional wage dispersion observed in the data as measured by the Mean-min ratio.

Keywords: job search; human capital accumulation; wage dispersion; turnover (search for similar items in EconPapers)
JEL-codes: J41 J42 J63 J64 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2012-10
New Economics Papers: this item is included in nep-dge, nep-hrm and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Working Paper: Job Search, Human Capital and Wage Inequality (2012)
Working Paper: Job search, human capital and wage inequality (2012)
Working Paper: Job Search, Human Capital and Wage Inequality (2010)
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