On-the-job wage dynamics

Eric Smith

Journal of Economic Theory, 2025, vol. 224, issue C

Abstract: This paper assesses wage setting and wage dynamics in a search and matching framework where (i) workers and firms on occasion can meet multilaterally; (ii) workers can recall previous encounters with firms; and (iii) firms cannot commit to future wages and workers cannot commit to not searching in the future. The resulting progression of wages (from firms paying just enough to keep their workers) yields a compensation structure consistent with well established but difficult to reconcile observations on pay dynamics within jobs at firms. Along with wage tenure effects, serial correlation in wage changes and wage growth are negatively correlated with initial wages.

Keywords: Wage dynamics; Stock-flow matching; No commitment; Job search (search for similar items in EconPapers)
JEL-codes: J31 J63 J64 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:224:y:2025:i:c:s0022053124001595

DOI: 10.1016/j.jet.2024.105953

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