Job Search, Bargaining, and Wage Dynamics

Abstract

ABSTRACT. This paper constructs and estimates a model of strategic wage bargaining with on-the-job search to explore three different components of wages: general human capital, match-specific capital, and outside option. As the workers find better job opportunities, the current employer has to compete with outside firms to retain them. This between-firm competition results in wage growth even when productivity remains the same.The model is estimated by a simulated minimum distance estimator and data from the NLSY79. The results indicate that the improved value of outside option raises wages of ten-year-experienced workers by 16%.

On‐the‐job Search, Productivity Shocks, and the Individual Earnings Process*

“…3 3 We should also mention a related and independently written paper by Yamaguchi (2006), which we discuss in . …”

“…Again, this would add great complexity in the formalization of the wage process. Yamaguchi (2006) takes this route in closely related (and independently conducted) research and finds it intractable to solve the model explicitly. He thus resorts to indirect inference for estimation.…”

“…shock, yet the model assumes that wages equal productivity at all dates, so that the wage process is exogenously specified in that paper. Finally, Yamaguchi (2006) and Lise et al (2008) introduce various forms of persistent productivity processes in models very similar to ours, but have to resort to numerical solutions and simulation‐based techniques to estimate their model.…”

“…54 54 Of course an alternative route would be to gain identification power by further tightening the model's structure and assuming more specific and less flexible functional forms for some elements of the model. This is the route followed by Yamaguchi (2006), to which we refer the reader. …”

“…56 56 See also Yamaguchi (2006) and Bagger et al (2006), whose focus is on the decomposition of young workers' wage growth between human capital accumulation and job search. …”