Working Paper: CEPR ID: DP14430
Authors: Sushant Acharya; Shu Lin Wee
Abstract: We examine how worker and firm on-the-job search have differential impacts on the productivity-wage gap. While an increase in both worker and firm on-the-job search raise productivity, they have opposing effects on wages. Increased worker on-the-job search raises workers' outside options, allowing them to demand higher wages. Increased firm on-the-job search improves firms' bargaining position relative to workers' by raising job insecurity and the wedge between hiring and meeting rates. This allows firms to pass-through a smaller share of productivity to wages, enlarging the productivity-wage gap. Quantitatively, the model can account for the observed widening US productivity-wage gap over time.
Keywords: on-the-job search; replacement hiring; productivity-wage gap; unemployment; labor share
JEL Codes: E24; J63; J64
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| worker on-the-job search (J68) | higher wage demands (J39) |
| firm on-the-job search (M51) | smaller share of productivity passed through to wages (D33) |
| firm on-the-job search (M51) | wider productivity-wage gap (J31) |
| higher replacement hiring share (J68) | wider productivity-wage gap (J31) |
| observed increase of 8% (O40) | wider productivity-wage gap (J31) |