Labor Market Dynamics: A Model of Search and Human Capital Accumulation

Gregory Veramendi

No 1059, 2012 Meeting Papers from Society for Economic Dynamics

Abstract: Informed by new measurements of labor market dynamics, I develop and estimate an equilibrium search model of worker mobility. I first describe new facts about the dynamics of wages across unemployment spells in Denmark. This implies that the job-ladder search model cannot by itself explain all the observed movements of workers between firms. I construct a new model of worker mobility which combines search and human capital accumulation. Workers in the model accumulate skills via learning-by-doing which has decreasing returns for a given job. Workers must either be promoted or find a job at a new firm in order to continue learning new skills. I show that by including this incentive to change jobs, career development not only helps explain wage dispersion, but also contributes to a more complete understanding of labor market dynamics. I structurally estimate the job-ladder search model using matched employer-employee data from Denmark. The estimates show that the job-ladder search model explains less than 10% of the worker mobility seen in the data. In addition, worker heterogeneity explains about 65% of the wage variance for college graduates and about 45% for all other workers.

Date: 2012
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