Estimating Equilibrium Search Models from Finnish Data

Empirical equilibrium search models have attracted a growing interest in recent years. Estimation of such models has not been completely successful, however. This has led researchers to develop more sophisticated versions of the models in an attempt to get a better fit to the data. We estimate various proposed specifications of the Burdett-Mortensen model from Finnish panel data. We begin with a pure search model in which search frictions are the only source of wage dispersion. Then we proceed to more complex specifications by introducing measurement error in wages and unobserved employer heterogeneity. Our results show how search frictions vary with education, age and sex, and how these differences are reflected in wage differentials in the Finnish labour market.