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American Economic Journal: Macroeconomics: Vol. 6 No. 1 (January 2014)

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Quantifying the Contribution of Search to Wage Inequality

Article Citation

Tjaden, Volker, and Felix Wellschmied. 2014. "Quantifying the Contribution of Search to Wage Inequality." American Economic Journal: Macroeconomics, 6(1): 134-61.

DOI: 10.1257/mac.6.1.134

Abstract

We empirically establish that one-third of job transitions leads to wage losses. Using a quantitative on-the-job search model, we find that 60 percent of them are movements down the job ladder. Accounting for them, our baseline calibration matches the large residual wage inequality in US data while attributing only 13.7 percent of overall wage inequality to the presence of search frictions in the labor market. We can trace the difference between ours and previous much higher estimates to our explicit modeling of nonvalue improving job-to-job transitions.

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Online Appendix (472.52 KB) | Download Data Set (298.34 KB) | Author Disclosure Statement(s) (289.46 KB)

Authors

Tjaden, Volker (U Bonn)
Wellschmied, Felix (U Bonn and IZA Bonn)

JEL Classifications

J24: Human Capital; Skills; Occupational Choice; Labor Productivity
J31: Wage Level and Structure; Wage Differentials
J64: Unemployment: Models, Duration, Incidence, and Job Search

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American Economic Journal: Macroeconomics


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