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30. November 2022

SOEP Brown Bag Seminar

Wage Dispersion and Life-Cycle Unemployment


30. November 2022


Francine D. Blau Room
DIW Berlin
Room 3.3.002b
Mohrenstraße 58
10117 Berlin


Sunoong Hwang (presenter) and Juwon Kwak, Pukyong National University

Higher wage dispersion may induce unemployed workers to search longer for a job by increasing their reservation wages. This paper investigates the implications of this mechanism in a job search model featuring a finite work life, showing that a mean-preserving spread of the wage offer distribution could lead to a larger increase in reservation wages of younger than older workers because the longer the future working lifetime the expected return to current search increases. Using the German Socio-Economic Panel for the period 1992-2018, we provide robust evidence supporting this prediction. We group workers by gender, age, education, and region, and find that an increase in within-group market wage dispersion has a significant positive effect on reservation wages and unemployment durations for young job seekers in their 20s, while this effect decreases and becomes insignificant as their age increases.

Keywords: wage inequality; job search; reservation wages; youth unemployment