The link between the inter - industry wage structure and the creation and destruction of jobs ¤ EALE / SOLE 2000

The paper explores the link between inter-industry wage di¤erences for identical workers and job ‡ows, in particular job destruction rates. I ...nd that, in the manufacturing sector, the two are negatively correlated across 2-digit SIC industries, a fact that most labor market theories fail to explain. A stochastic equilibrium model with endogenous job reallocation and search in the labor market is presented, in which ...rms invest in workers ...rm-speci...c human capital. In line with the literature on investment under uncertainty, the model’s solution is in terms of thresholds for the di¤erent margins of ...rms’ labor demand policies, thus allows to disentangle the distinct e¤ects of changes in exogenous parameters. By varying parameters such as skill requirements, demand uncertainty, and costs of job creation, general equilibrium across industry can be simulated. The models analysis highlights the importance of a duration e¤ect: when job turnover is low, ...rms expect jobs to last longer. This increases the incentive to train, leading to higher wages if the returns to these investments are shared. Without training, compensating di¤erentials for higher job insecurity would create a positive correlation between job ‡ows and wages, contrary to the data.