A Feasible Equilibrium Search Model of Individual Wage Dynamics with Experience Accumulation

Joint with: Jesper Bagger, Francois Fontaine, and Jean Marc Robin

We present a tractable equilibrium job search model of individual worker careers allowing for human capital accumulation, employer heterogeneity and individual-level shocks. We estimate our structural model on a panel of Danish matched employer-employee data and use it to analyze the determinants of individual wage dynamics. Our main motivation for doing this is to quantify the respective roles of human capital accumulation coming along with work experience and the forces of labor market competition activated by workers' job search behavior in shaping individual labor earnings dynamics over the life cycle. Our structural model permits a decomposition of monthly wage growth into contributions from human capital accumulation and from job search, within and between job spells. We find that the job-search-related within-job effects dominates between-job effects. In relative terms, human capital accumulation is quantitatively more important for wage growth early in workers' careers, and its quantitative importance increases in workers' educational attainment. Indeed, human capital accumulation is the primary source for early career wage growth among high-educated workers.

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