Heterogeneous job ladders

Abstract

We investigate different wage growth rates over the life cycle for poor and rich workers, and how they relate to the frequency and quality of job-to-job transitions. Using the universe of labor market histories for Austrian workers born in 1960–62 to, we show that workers who are at the bottom of the earnings distribution have higher employer-to-employer transition rates than richer workers throughout their life. Nevertheless, they work for worse- and worse-paying firms as they age and are more likely to undergo unemployment spells at all ages. We propose a structural framework with learning by doing and heterogeneity along five dimensions: initial level of human capital, learning ability, and job separation propensity on the worker side, and productivity level and quality of offered learning opportunities on the employer side. Our model replicates the wage gap and the difference in the frequency of labor market transitions we document in the data, and allows us to investigate several dimensions of heterogeneity in the quality of labor market transitions. We find that poor workers’ lackluster wage growth stems from a combination of deteriorating human capital, employment in low-productivity jobs, and scarce on-the-job learning opportunities. We then evaluate a policy which matches low-wage workers to high-learning employers. We find that ameliorating the learning opportunities early in a worker’s career has a non-negligible impact on lifetime earnings. The gains from matching with a better employer greatly increase with job stability, as lower separation rates limit human capital depreciation and improve the odds of matching with high-productivity employers in the future.