Quantifying the contribution of search to wage inequality

We empirically establish that one-third of job transitions leads to wagelosses. Using a quantitative on-the-job search model, we find that60 percent of them are movements down the job ladder. Accountingfor them, our baseline calibration matches the large residual wageinequality in US data while attributing only 13.7 percent of overallwage inequality to the presence of search frictions in the labormarket. We can trace the difference between ours and previous muchhigher estimates to our explicit modeling of nonvalue improvingjob-to-job transitionsThis research has received funding from the European Research Council under the European Union’s Seventh Framework Programme (FTP/2007–2013)/ERC Grant agreement no. 282740. Both authors gratefully acknowledge support from the Deutsche Forschungsgemeinschaft (DFG) through the Bonn Graduate School of Economic