On-the-job Search and the Productivity-Wage Gap

Sushant Acharya and Shu Lin Wee

No 14430, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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 (search for similar items in EconPapers)
JEL-codes: E24 J63 J64 (search for similar items in EconPapers)
Date: 2020-02
New Economics Papers: this item is included in nep-bec and nep-mac
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Citations: View citations in EconPapers (1)

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