Discussion Paper Details

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Title: On-the-job Search and the Productivity-Wage Gap

Author(s): Sushant Acharya and Shu Lin Wee

Publication Date: February 2020

Keyword(s): Labor Share, on-the-job search, Productivity-wage gap, Replacement hiring and unemployment

Programme Area(s): Labour Economics, Macroeconomics and Growth and Monetary Economics and Fluctuations

Abstract: We examine how worker and firm on-the-job search have differential impacts on the productivity-wage gap. While an increase in both worker and firm on-the-job search raise productivity, they have opposing effects on wages. Increased worker on-the-job search raises workers' outside options, allowing them to demand higher wages. Increased firm on-the-job search improves firms' bargaining position relative to workers' by raising job insecurity and the wedge between hiring and meeting rates. This allows firms to pass-through a smaller share of productivity to wages, enlarging the productivity-wage gap. Quantitatively, the model can account for the observed widening US productivity-wage gap over time.

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Bibliographic Reference

Acharya, S and Wee, S. 2020. 'On-the-job Search and the Productivity-Wage Gap'. London, Centre for Economic Policy Research.