Job Search, Bargaining, and Wage Dynamics

Abstract

This paper constructs and estimates a model of wage bargaining with on-the-job search to explore three different components of wages: general human capital, match-specific capital, and outside options. 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 the outside option raises wages by 14-16% in the first five years.

Keywords: Search, Matching, Age-earnings profile, Structural Estimation

JEL Classification: J31, J63, J64