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Work on this paper started when Andrés Fuentes was at the Institute of Economics and Statistics, Wolfson College and Oriel College in the University of Oxford (United Kingdom). The paper benefited from comments by Stephen Bond and Stephen Nickell, and from comments received at an IMF Institute seminar. All errors remain the author’s.
Pissarides and Wadsworth’s approach is to estimate, in a first stage, the probability that an employed person decides to search, no matter whether search is undertaken by quitting into unemployment or by searching on-the-job, and, in a second stage, the probability of an individual searching on-the-job, conditional on the decision to search using a sample selection framework. We find however that the number of voluntary quits into unemployment is very small so we do not follow this procedure.
Earnings related supplement is added when applicable.
This is the number of vacancies divided by employment in the two months preceding the survey reference period.
A Sargan test of overidentifying restrictions fails to reject the hypothesis of instrument validity, but owing to sample size limitations this test is not based on estimators robust to heteroskedasticity.
The procyclicality of on-the-job search is mitigated, but not offset, by the positive effect of redundancies on on-the-job search, as vacancies pick-up more of the variation in the dependent variable than redundancies.
This calculation disregards the endogeneity of unemployment, vacancies, short job tenure and redundancies. Since these variables have positive estimated effects on on-the-job search, this omission results in underestimation of the contribution of wage dispersion in explaining the variation in on-the-job search.