Wage Dynamics with Private Learning-by-Doing and On-the-Job Search

32 Pages Posted: 26 Nov 2013 Last revised: 10 Aug 2017

Date Written: December 12, 2016

Abstract

This paper develops an equilibrium job search model in which the employed worker privately accumulates human capital and continually searches for a better paying job. Firms encourage production and discourage turnover by rewarding with bonus payments and long service allowances, respectively, workers with better performance and longer job tenure. Wage growth attends human capital accumulation (productive promotion) and job tenure (non-productive promotion) as well as job-to-job transition. The model is estimated using indirect inference to investigate the effect of human capital accumulation on individual wage growth. In NLSY79 data, the average wage of white male high school graduates after 20 years of market experience is 1.88 times higher than the average of the first full-time wages. A counterfactual experiment using the structural parameter estimates shows that the wage of a typical worker unable to accumulate human capital would grow by 41.8%.

Keywords: Wage Dynamics, Human Capital Accumulation, Wage-Tenure Contract

JEL Classification: D82, E24, J31, J41

Suggested Citation

Sim, Seung-Gyu, Wage Dynamics with Private Learning-by-Doing and On-the-Job Search (December 12, 2016). Available at SSRN: https://ssrn.com/abstract=2359432 or http://dx.doi.org/10.2139/ssrn.2359432

Seung-Gyu Sim (Contact Author)

Aoyama Gakuin University ( email )

4-4-25 Shibuya, Shibuya-ku
Tokyo, 150-8366
Japan

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