Working Paper: CEPR ID: DP14428
Authors: Kenneth Burdett; Carlos Carrillo-Tudela; Melvyn G. Coles
Abstract: This paper identifies an equilibrium theory of wage formation and endogenous quit turnover in a labour market with on-the-job search, where risk averse workers accumulate human capital through learning-by-doing and lose skills while unemployed. Optimal contracting implies the wage paid increases with experience and tenure. Indirect inference using German data determines the deep parameters of the model. The estimated model not only reproduces the large and persistent fall in wages and earnings following job loss, a new structural decomposition finds foregone human capital accumulation (while unemployed) is the worker's major cost of job loss.
Keywords: job search; human capital accumulation; job loss
JEL Codes: J63; J64; J41; J42
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| job loss (J63) | decline in wages and earnings (J31) |
| unemployment (J64) | foregone human capital accumulation (J17) |
| job loss (J63) | job ladder losses (J62) |
| job ladder losses (J62) | lower wages (J31) |
| unemployment (J64) | skill losses (J24) |
| skill losses (J24) | overall cost of job loss (J65) |
| employment gaps (J63) | exacerbating wage losses (F66) |