DIW Applied Micro Seminar

We produce a new decomposition of wage inequality into worker and firm-level components, and study its evolution over time. To do so, we build and estimate an equilibrium search model with on the job search (as in Postel-Viney and Robin, 2002). The model delivers a theory of steady-state wage dispersion driven by heterogeneous worker abilities and firm productivities, as well as matching frictions and workers’ bargaining power. An estimation procedure is designed to recover these components and their underlying parameters using two consecutive years of matched employer and employee panel data. Assuming steady-state in each case, we estimate the model parameters for all sub-panels of two consecutive years over the period 1976-2011 using the French DADS panel. We then analyze the macro-dynamics of estimated parameters and see how they contribute to explain changes in wage inequalities. Our estimation strategy has been tested using simulated data. Estimation using real-world data is still in progress and we do not have any results to present for the moment.