Jake Bradley

A job ladder model with stochastic employment opportunities

Abstract:  The canonical equilibrium job ladder model is much used in labour research due to its ability to replicate empirical features relating to the wage distribution and employment dynamics. However, the search process for workers is highly stylized. The job offer arrival rate only varies by employment status and the distributions of accepted wages are independent of career histories. We extend the model so that the labour demand for a particular worker stochastically varies over time. The resulting model has on- and off-the-job search in a thin labour market while retaining analytical tractability. When the thickness of a worker's market is constant, we nest the standard job ladder model. Our estimates, suggest that the dynamics of the market thickness play a crucial role in explaining unemployment, worker values and the dispersion of wages. The model is estimated on U.S. survey data and identified using wage data and employment dynamics.