Type 3s have by far the longest average employment duration of nearly 29 months, but also experience the longest mean unemployment duration because they have the
lowest unemployed job offer probability. Type 3s on average receive a log- wage that is about 50 percent larger that of Type 1s, and is about 15 percent larger than that of a
Type 2 worker. The differences in parameter values across types translate into moder- ate differences in the expected discounted value of lifetime utility. The discounted
expected value of lifetime utilities for Type 2 and 3 workers are fairly similar and are 20–25 percent higher than the discounted expected value of lifetime utility for the
frequently unemployed, low- wage, Type 1 workers.
B. Model fi t
It is also interesting to note that the model does a good job fi tting the data. Table 6 shows the moments from the NLSY97 data used to estimate the model along with the
simulated moments generated by the parameter estimates shown in Table 2 for Speci- fi cation 1 of the model. Overall, the fi t of the model to these moments is very good.
Because there are a large number of moments in the table, this section will discuss only a small subset of moments that seem particularly relevant. In particular, Panel 1
shows that the model captures the upward trend in average wages and employment durations as individuals move between employers within employment cycles. The
model matches the standard deviation of wages for the fi rst job in a cycle quite closely, although the model tends to under predict wage dispersion at subsequent jobs.
The model also does a good job matching the transition and duration moments shown in Panels 2 and 3 of Table 6. In particular, the model closely tracks patterns in
mean wage changes in the NLSY97 data. Importantly, given the focus of the paper, the model predicts that 39.8 percent of job- to- job transitions will involve a wage decrease
while 36.4 percent of job- to- job transitions in the NLSY97 data have this feature. Panel 4 of Table 6 shows that the model slightly under- predicts the reduced form wage-
experience profi le, which is perhaps not surprising because the search model does not allow for wage growth due to human capital. Finally, the model is in general successful
in fi tting the within person covariance moments which are generated by unobserved heterogeneity, and in fi tting the across- person moments shown in Panel 5 of Table 6.
Table 5 Mean Outcomes by Type in Simulated Data
Type 1 Type 2
Type 3 All Types
Employment duration 3.16
15.06 28.56
19.60 Unemployment duration
9.91 4.27
10.94 8.28
Log- Wage 1.57
2.05 2.35
2.14 Utility while employed
2.08 2.48
2.58 2.50
Discounted expected value of lifetime utility 242.13
303.15 290.26
289.89 Proportion
0.14 0.50
0.36 1.00
Notes: Durations in months.
C. Implications for compensating wage differentials
