Unemployment risk and wage differentials

Roberto Pinheiro and Ludo Visschers

MPRA Paper from University Library of Munich, Germany

Abstract: Workers in less secure jobs are often paid less than identical-looking workers in more secure jobs. We show that this lack of compensating differentials for unemployment risk can arise in equilibrium when all workers are identical, and firms differ, but do so only in offered job security (the probability that the worker is not sent into unemployment). In a setting where workers search on and off the job, wages paid increase with job security for at least all firms in the risky tail of the distribution of firm-level unemployment risk. As a result, unemployment spells become persistent for low-wage and unemployed workers, a seeming pattern of ‘unemployment scarring’, that is created entirely by firm heterogeneity alone. Higher in the wage distribution, workers can take wage cuts to move to more stable employment.

Keywords: Unemployment risk; Wage Differentials; Unemployment Scarring (search for similar items in EconPapers)
JEL-codes: J31 J63 J64 (search for similar items in EconPapers)
Date: 2012-01
New Economics Papers: this item is included in nep-dge, nep-lab and nep-lma
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https://mpra.ub.uni-muenchen.de/36907/1/MPRA_paper_36907.pdf original version (application/pdf)

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Working Paper: Unemployment Risk and Wage differentials (2015)
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Working Paper: Unemployment Risk and Wage Differentials (2013)
Working Paper: Unemployment Risk and Wage Differentials (2013)
Working Paper: Unemployment Risk and Wage Differentials (2013)
Working Paper: Unemployment risk and wage differentials (2012)
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