Eckstein, Zvi, Ge, Suqin and Petrongolo, Barbara (2006) Job and wage mobility in a search model with non-compliance (exemptions) with the minimum wage. 2076. Institute for the Study of Labor, Bonn, Germany.
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We use a simple job search model to explain the doubling of mean hourly earnings of white males, and the five-fold increase in their variance, during the first 18 years of labor market experience. For this purpose we embody minimum wage regulations and imperfect compliance in a job search model encompassing job mobility and on-the-job wage growth as potential sources of wage dynamics. The model is estimated by simulated GMM using data from the NLSY79. Our estimated model provides a good fit for the observed levels and trends of the main job and wage mobility data, and in particular it replicates very well the increase in the first and second moments of the wage distribution over the life cycle, as well as the fall in the fraction of workers paid below the minimum wage. Our estimates imply that job mobility explains between one third and one half of the observed wage growth. Counterfactual experiments of increases in the minimum wage and/or compliance deliver small effects on both the actual wage distribution and the nonemployment rate.
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