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Wage dynamics and labor market transitions: a reassessment through total income and “usual” wages

Author

Listed:
  • Maria E. Canon
  • Ronni Pavan
Abstract
We present a simple on-the-job search model in which workers can receive shocks to their employer-specific c productivity match. Because the firm-specific match can vary, wages may increase or decrease over time at each employer. Therefore, for some workers, job-to-job transitions are a way to escape job situations that worsened over time. The contribution of our paper relies on our novel approach to identifying the presence of the shock to the match specific productivity. The presence two independent measures of workers compensation in our dataset of is crucial for our identification strategy. In the first measure, workers are asked about the usual wage they earn with a certain employer. In the second measure, workers are asked about their total amount of labor earnings during the previous year. While the first measure records the wages at a given point in time, the second measure records the sum of all wages within one year. We calibrate our model using both measures of workers compensation and data on employment transitions. The results show that 59% of the observed wage cuts following job-to- job transitions are due to deterioration of the firm-specific component of wages before workers switch employers.

Suggested Citation

  • Maria E. Canon & Ronni Pavan, 2014. "Wage dynamics and labor market transitions: a reassessment through total income and “usual” wages," Working Papers 2014-32, Federal Reserve Bank of St. Louis.
    • Handle: RePEc:fip:fedlwp:2014-032
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    References listed on IDEAS

    as
    1. Pierre Cahuc & Fabien Postel-Vinay & Jean-Marc Robin, 2006. "Wage Bargaining with On-the-Job Search: Theory and Evidence," Econometrica, Econometric Society, vol. 74(2), pages 323-364, March.
    2. Eckstein, Zvi & van den Berg, Gerard J., 2007. "Empirical labor search: A survey," Journal of Econometrics, Elsevier, vol. 136(2), pages 531-564, February.
    3. Fabien Postel-Vinay & Hélène Turon, 2010. "On-The-Job Search, Productivity Shocks, And The Individual Earnings Process," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 51(3), pages 599-629, August.
    4. Jolivet, Gregory & Postel-Vinay, Fabien & Robin, Jean-Marc, 2006. "The empirical content of the job search model: Labor mobility and wage distributions in Europe and the US," European Economic Review, Elsevier, vol. 50(4), pages 877-907, May.
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    6. Jeremy Lise & Costas Meghir & Jean-Marc Robin, 2013. "Mismatch, sorting and wage dynamics," IFS Working Papers W13/16, Institute for Fiscal Studies.
    7. Keane, Michael P & Wolpin, Kenneth I, 1997. "The Career Decisions of Young Men," Journal of Political Economy, University of Chicago Press, vol. 105(3), pages 473-522, June.
    8. Fabien Postel-Vinay & Jean-Marc Robin, 2002. "Equilibrium Wage Dispersion with Worker and Employer Heterogeneity," Econometrica, Econometric Society, vol. 70(6), pages 2295-2350, November.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    wage dynamics; earnings dynamics; job mobility.;
    All these keywords.

    JEL classification:

    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers

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