30. November 2022

SOEP Brown Bag Seminar

Wage Dispersion and Life-Cycle Unemployment

Termin

30. November 2022
12:30-13:30

Ort

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

Sprecher*innen

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


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