Visitor Centre 3:30 pm.
Valeriu Omer,
(University of Minnesota)
Abstract
The typical early career of a male high school graduate in the US is characterized by significant wage growth and high mobility. Frequently, job changes are associated with large wage increases, and overall, wage growth between jobs accounts for a third of the worker’s entire wage growth. Prompted by this observation, this paper asks the question, how much of the worker wage growth and welfare is due to search on-the-job and how much is due to the accumulation of experience while working. In order to answer the question, I construct a structural dynamic search model in which utility maximizing workers gain experience by working. The model parameters are estimated using the employment and wage data for a sample of young male high school graduates from the National Longitudinal Survey of Youth (NLSY). The main finding is that the contribution of search on-the-job to a worker’s welfare is roughly four times less than the contribution of experience. The structural model allows the analysis of the impact of this finding on the design of labor market policies. In particular, the optimal level of the unemployment benefit is higher in environments in which the relative contribution of search on-the-job to workers’ earnings is small.