Discussion paper

DP14430 On-the-job Search and the Productivity-Wage Gap

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.

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Citation

Acharya, S and S Wee (eds) (2020), “DP14430 On-the-job Search and the Productivity-Wage Gap”, CEPR Press Discussion Paper No. 14430. https://new.cepr.org/publications/dp14430