On-the-job search and the productivity-wage gap

Sushant Acharya and Shu Lin Wee

European Economic Review, 2025, vol. 179, issue C

Abstract: We examine how worker and firm on-the-job search have differential impacts on the productivity-wage gap. While an increase in both worker and firm on-the-job search raise productivity, they have opposing effects on wages. Increased worker on-the-job search raises workers’ outside options, allowing them to demand higher wages. Increased firm on-the-job search improves firms’ bargaining position relative to workers’ by raising job insecurity and the wedge between hiring and meeting rates, allowing firms to pass-through a smaller share of productivity to wages and enlarging the productivity-wage gap. Quantitatively, the model accounts for about a quarter of the observed divergence in the US productivity-wage gap between 1990 and 2017.

Keywords: On-the-job search; Replacement hiring; Productivity-wage gap; Unemployment; Labor share (search for similar items in EconPapers)
JEL-codes: E24 J63 J64 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:179:y:2025:i:c:s0014292125001771

DOI: 10.1016/j.euroecorev.2025.105127

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