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How Large are Search Frictions?

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Author Info
Pieter A. Gautier
Coen N. Teulings

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Abstract

This paper shows that we can normalize job and worker characteristics so that, without frictions, there exists a linear relationship between wages on the one hand and worker and job type indices on the other. However, for five European countries and the United States we find strong evidence for a systematic concave relationship. An assignment model with search frictions provides a parsimonious explanation for our findings. This model yields two restrictions on the coefficients that fit the data well. Allowing for unobserved heterogeneity and measurement error, we find that reservation wages are 25% lower than they would be in a frictionless world. Our resultsrelate to the literature on industry wage differentials and on structural identification in hedonic models. (JEL: J210, J300, J600, J230) (c) 2006 by the European Economic Association.

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File URL: http://www.mitpressjournals.org/doi/pdfplus/10.1162/JEEA.2006.4.6.1193
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Article provided by MIT Press in its journal Journal of the European Economic Association.

Volume (Year): 4 (2006)
Issue (Month): 6 (December)
Pages: 1193-1225
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Handle: RePEc:tpr:jeurec:v:4:y:2006:i:6:p:1193-1225

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Coen N. Teulings & Pieter A. Gautier, 2004. "The Right Man for the Job," Review of Economic Studies, Blackwell Publishing, vol. 71(2), pages 553-580, 04. [Downloadable!] (restricted)
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  2. Pieter A. Gautier & Coen N. Teulings & Aico van Vuuren, 2005. "On-The-Job Search and Sorting," IZA Discussion Papers 1687, Institute for the Study of Labor (IZA). [Downloadable!]
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  3. Robert Shimer & Lones Smith, 2000. "Assortative Matching and Search," Econometrica, Econometric Society, vol. 68(2), pages 343-370, March.
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  4. Fabien Postel-Vinay & Jean-Marc Robin, 2002. "Equilibrium Wage Dispersion with Worker and Employer Heterogeneity," Econometrica, Econometric Society, vol. 70(6), pages 2295-2350, November. [Downloadable!] (restricted)
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  5. Angrist, Joshua D & Krueger, Alan B, 1991. "Does Compulsory School Attendance Affect Schooling and Earnings?," The Quarterly Journal of Economics, MIT Press, vol. 106(4), pages 979-1014, November. [Downloadable!] (restricted)
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  6. Bound, John & Krueger, Alan B, 1991. "The Extent of Measurement Error in Longitudinal Earnings Data: Do Two Wrongs Make a Right?," Journal of Labor Economics, University of Chicago Press, vol. 9(1), pages 1-24, January. [Downloadable!] (restricted)
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  7. John M. Abowd & Francis Kramarz & David N. Margolis, 1994. "High-Wage Workers and High-Wage Firms," CIRANO Working Papers 94s-23, CIRANO. [Downloadable!]
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  8. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb.. [Downloadable!] (restricted)
  9. C.N. Teulings & P.A. Gautier, 2002. "Search and the City," Tinbergen Institute Discussion Papers 02-061/3, Tinbergen Institute. [Downloadable!]
  10. Teulings, Coen N, 1995. "The Wage Distribution in a Model of the Assignment of Skills to Jobs," Journal of Political Economy, University of Chicago Press, vol. 103(2), pages 280-315, April. [Downloadable!] (restricted)
  11. Krueger, Alan B & Summers, Lawrence H, 1988. "Efficiency Wages and the Inter-industry Wage Structure," Econometrica, Econometric Society, vol. 56(2), pages 259-93, March. [Downloadable!] (restricted)
  12. Sattinger, Michael, 1975. "Comparative Advantage and the Distributions of Earnings and Abilities," Econometrica, Econometric Society, vol. 43(3), pages 455-68, May. [Downloadable!] (restricted)
  13. Jovanovic, Boyan, 1979. "Job Matching and the Theory of Turnover," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 972-90, October. [Downloadable!] (restricted)
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  14. Kahn, Shulamit & Lang, Kevin, 1988. "Efficient Estimation of Structural Hedonic Systems," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 29(1), pages 157-66, February. [Downloadable!] (restricted)
  15. Coen N. Teulings & José A.C. Vieira, 1998. "Urban versus Rural Return to Human Capital in Portugal, A Cook-Book Recipe for Applying Assignment Models," Tinbergen Institute Discussion Papers 98-095/3, Tinbergen Institute, revised 20 Sep 2002. [Downloadable!]
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. C.N. Teulings & P.A. Gautier, 2002. "Search and the City," Tinbergen Institute Discussion Papers 02-061/3, Tinbergen Institute. [Downloadable!]
  2. Bernd Fitzenberger & Alfred Garloff, 2006. "Descriptive Evidence on Labor Market Transitions and the Wage Structure in Germany," Working Papers of the Research Group Heterogenous Labor 06-02, Research Group Heterogeneous Labor, University of Konstanz/ZEW Mannheim. [Downloadable!]
  3. Bruno Crépon & Muriel Dejemeppe & Marc Gurgand, 2005. "Counseling the Unemployed: Does It Lower Unemployment Duration and Recurrence?," IZA Discussion Papers 1796, Institute for the Study of Labor (IZA). [Downloadable!]
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  4. Pieter A. Gautier & Coenraad N. Teulings & Aico van Vuuren, 2005. "On-the-Job Search and Sorting," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
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  5. Fitzenberger, Bernd & Garloff, Alfred, 2005. "Descriptive Evidence on Labor Market Transitions and the Wage Structure in Germany," ZEW Discussion Papers 05-95, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
  6. Pieter A. Gautier & José Luis Moraga-González & Ronald P. Wolthoff, 2007. "Structural Estimation of Search Intensity: Do Non-Employed Workers Search Enough?," IZA Discussion Papers 3045, Institute for the Study of Labor (IZA). [Downloadable!]
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