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Frictional Wage Dispersion in Search Models: A Quantitative Assessment

Author

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  • Andreas Hornstein
  • Per Krusell
  • Giovanni L. Violante

Abstract

We propose a new measure of frictional wage dispersion: the mean-min wage ratio. For a large class of search models, we show that this measure is independent of the wage-offer distribution but depends on statistics of labor-market turnover and on preferences. Under plausible preference parameterizations, observed magnitudes for worker flows imply that in the basic search model, and in most of its extensions, frictional wage dispersion is very small. Notable exceptions are some of the most recent models of on-the-job search. Our new measure allows us to rationalize the diverse empirical findings in the large literature estimating structural search models. (JEL D81, D83, J31, J41, J64)

Suggested Citation

  • Andreas Hornstein & Per Krusell & Giovanni L. Violante, 2011. "Frictional Wage Dispersion in Search Models: A Quantitative Assessment," American Economic Review, American Economic Association, vol. 101(7), pages 2873-2898, December.
    • Handle: RePEc:aea:aecrev:v:101:y:2011:i:7:p:2873-98
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    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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