Are initial wage losses of intersectoral movers compensated for by their subsequent wage gains?

Donggyun Shin, Kwanho Shin, Seonyoung Park

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

This paper presents an equilibrium explanation of the inter- and intrasectoral mobility of workers. Analyses of our samples from the Panel Study of Income Dynamics and the National Longitudinal Survey of Youth show that, other things being equal, the initial wage decline is greater for intersectoral movers than for intrasectoral movers. Intersectoral movers, however, enjoy higher wage growth in subsequent years on postunemployment jobs than intrasectoral movers do, and hence are compensated for their initial wage decline. Our estimates suggest that, other things being constant, the additional short-term wage loss associated with sector shifts is overturned in no more than four years by the greater wage growth of intersectoral movers in subsequent years. The findings in the current study clearly show that the true economic costs of intersector mobility tend to be overstated in existing studies and are significantly lowered in the long-term perspective. Calibration of a simple lifetime utility model demonstrates that inter- and intrasectoral movements of workers are quantitatively consistent with an equilibrium framework, at least for a major group of workers who move with longer term perspectives. Evidence also shows that job seekers consider not only the initial wage rate but also the subsequent wages received from the postunemployment job when deciding whether to recommence employment or switch sectors.

Original languageEnglish
Pages (from-to)501-526
Number of pages26
JournalMacroeconomic Dynamics
Volume14
Issue number4
DOIs
Publication statusPublished - 2010 Sep 1

Keywords

  • Duration of Unemployment
  • Initial Wages
  • Intersectoral Mover
  • Intrasectoral Mover
  • Wage Growth

ASJC Scopus subject areas

  • Economics and Econometrics

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