Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/20182 
Authors: 
Year of Publication: 
2003
Series/Report no.: 
IZA Discussion Papers No. 946
Publisher: 
Institute for the Study of Labor (IZA), Bonn
Abstract: 
I use the PSID to decompose the rise in wage inequality into a permanent and a transitory component. I consider separately job stayers and job changers. I find that earnings instability (the variance of the transitory component of earnings) increased much more among job changers than among job stayers. I interpret the evidence in a search and matching model with on-the-job search. The increasing variance of the transitory component of earnings is modeled as a mean-preserving spread of the distribution of productivity shocks. The meanpreserving spread induces on-the-job search on a wider range of productivity values. As a result of increased on-the-job search, the variance of the transitory part of earnings increases among job changers. The direction of the change in the transitory variance across job stayers is ambiguous and depends on their composition between non-seekers and on-the-job seekers who did not find a new job.
Subjects: 
earnings instability
on-the-job search
JEL: 
J31
J21
Document Type: 
Working Paper

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