Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/89637
Authors: 
Pinheiro, Roberto
Visschers, Ludo
Year of Publication: 
2013
Series/Report no.: 
CESifo Working Paper 4534
Abstract: 
Workers in less secure jobs are often paid less than identical-looking workers in more secure jobs. We show that this lack of compensating differentials for unemployment risk can arise in equilibrium when all workers are identical and firms differ only in job security (i.e. the probability that the worker is not sent into unemployment). In a setting where workers search for new positions both on and off the job, the worker's marginal willingness to pay for job security is endogenous: it depends on the behavior of all firms in the labor market and increases with the rent the employing firm leaves to the worker. We solve for the labor market equilibrium, finding that wages increase with job security for at least all firms in the risky tail of the distribution of firm-level unemployment risk. Meanwhile, unemployment becomes persistent for low-wage and unemployed workers, a seeming pattern of unemployment scarring' created entirely by firm heterogeneity. Higher in the wage distribution, workers can take wage cuts to move to more stable employment.
Subjects: 
layoff rates
unemployment risk
wage differentials
unemployment scarring
JEL: 
J31
J63
Document Type: 
Working Paper

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