Equilibrium Search Models and the Transition from School to Work

Abstract

This paper applies an equilibrium search to study the transition from schooling to work of U.S. high school graduates. We consider the case where there is heterogeneity in firm productivity and the number of firm types is discrete. For this case the estimation problem is non-standard and the likelihood function is non-differentiable. This paper provides a computational method to obtain the MLE and, through several Monte Carlo studies, characterizes the behavior of the estimator. Applying these methods to the transition from school to work, our results show that nonemployed blacks receive fewer offers than whites and employed blacks are more likely to lose their jobs. Importantly, employed blacks and whites receive job offers at the same rate. However, the difference in job destruction rates is so great that it accounts for three-quarters of the black-white wage differential.