Occupation Mobility and Wage Dynamics Within and Between Firms – OMWD

Abstract The aim of this research is to understand how much of wage dynamics relates to human capital accumulation, and how much derives from a frictional matching process at work both within and between firms. In an economy where informational frictions give employers monopsony power, wages do not directly identify human capital. This is why we shall use both wages and occupations in our empirical work; a 4-digit occupation code being supposed to be sufficiently precise to convey information on the human capital level necessary to carry out the corresponding task well. Furthermore, because occupational changes are observed both inside firm as well as with a concomitant employer change, we construct a model with internal and external labor markets. Internal labor markets mediate occupational mobility and wage dynamics within firms, whereas the external labor market refers to occupational mobility with employer change, and related wage dynamics.