Wage Dynamics with Private Learning-by-Doing and On-the-Job Search

This paper develops an equilibrium job search model in which the employed worker privately accumulates human capital and continually searches for a better paying job. Firms encourage production and discourage turnover by rewarding with bonus payments and long service allowances, respectively, workers with better performance and longer job tenure. Wage growth attends human capital accumulation (productive promotion) and job tenure (non-productive promotion) as well as job-to-job transition. The model is estimated using indirect inference to investigate the effect of human capital accumulation on individual wage growth. In NLSY79 data, the average wage of white male high school graduates after 20 years of market experience is 1.88 times higher than the average of the first full-time wages. A counterfactual experiment using the structural parameter estimates shows that the wage of a typical worker unable to accumulate human capital would grow by 41.8%