Exploring the Causes of Frictional Wage Dispersion

Volker Tjaden () and Felix Wellschmied
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Volker Tjaden: University of Bonn

No 6299, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Standard search models are unreliable for structural inference of the underlying sources of wage inequality because they are inconsistent with observed residual wage dispersion. We address this issue by modeling skill development and duration dependence in unemployment benefits in a random on the job search model featuring two-sided heterogeneity. General human capital and search on the job are the main drivers behind our model's empirical success in replicating wage dispersion (residual and overall). A realistic quantitative appraisal of search efficiencies needs to account for one third of job to job transitions resulting in wage losses. Controlling for them has important implications for the inferred sources of wage inequality. We find that the search friction accounts for around 18 percent of observed wage inequality.

Keywords: heterogeneity; frictional wage dispersion; search model (search for similar items in EconPapers)
JEL-codes: J24 J31 J64 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2012-01
New Economics Papers: this item is included in nep-lab, nep-lma and nep-ltv
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Published - published in: American Economic Journal: Macroeconomics, 2014, 6 (1), 134-161

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Related works:
Working Paper: Exploring the Causes of Frictional Wage Dispersion (2011)
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