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On-the Job Wage Dynamics

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  • Eric Smith

Abstract

This paper assesses wage setting and wage dynamics in a search and matching framework where (i) workers and firms on occasion 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 on the job. 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.

Suggested Citation

  • Eric Smith, 2023. "On-the Job Wage Dynamics," CESifo Working Paper Series 10788, CESifo.
    • Handle: RePEc:ces:ceswps:_10788
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    File URL: https://www.cesifo.org/DocDL/cesifo1_wp10788.pdf
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    References listed on IDEAS

    as
    1. Jesper Bagger & Fran?ois Fontaine & Fabien Postel-Vinay & Jean-Marc Robin, 2014. "Tenure, Experience, Human Capital, and Wages: A Tractable Equilibrium Search Model of Wage Dynamics," American Economic Review, American Economic Association, vol. 104(6), pages 1551-1596, June.
    2. Kuo, Mien-Yun & Smith, Eric, 2009. "Marketplace matching in Britain: Evidence from individual unemployment spells," Labour Economics, Elsevier, vol. 16(1), pages 37-46, January.
    3. Ekaterina S. Jardim & Gary Solon & Jacob L. Vigdor, 2019. "How Prevalent Is Downward Rigidity in Nominal Wages? Evidence from Payroll Records in Washington State," NBER Working Papers 25470, National Bureau of Economic Research, Inc.
    4. Lillard, Lee A & Weiss, Yoram, 1979. "Components of Variation in Panel Earnings Data: American Scientists, 1960-70," Econometrica, Econometric Society, vol. 47(2), pages 437-454, March.
    5. Dale T. Mortensen, 2005. "Wage Dispersion: Why Are Similar Workers Paid Differently?," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262633191, April.
    6. Michael W. L. Elsby & Gary Solon, 2019. "How Prevalent Is Downward Rigidity in Nominal Wages? International Evidence from Payroll Records and Pay Slips," Journal of Economic Perspectives, American Economic Association, vol. 33(3), pages 185-201, Summer.
    7. Pedro S. Martins & Gary Solon & Jonathan P. Thomas, 2012. "Measuring What Employers Do about Entry Wages over the Business Cycle: A New Approach," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(4), pages 36-55, October.
    8. Ricardo Lagos, 2000. "An Alternative Approach to Search Frictions," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 851-873, October.
    9. repec:hal:spmain:info:hdl:2441/7rep5mp5ij95l94ec64n5tdclp is not listed on IDEAS
    10. Curtis R. Taylor, 1995. "The Long Side of the Market and the Short End of the Stick: Bargaining Power and Price Formation in Buyers', Sellers', and Balanced Markets," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(3), pages 837-855.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    wage dynamics; stock-flow matching; on-the-job search; no commitment;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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