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Sorting and the Output Loss due to Search Frictions

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  • Pieter A. Gautier
  • Coen N. Teulings

Abstract

We analyze a general search model with on-the-job search and sorting of heterogeneous workers into heterogeneous jobs. This model yields a simple relationship between (i) the unemployment rate, (ii) the value of non-market time, and (iii) the max-mean wage differential. The latter measure of wage dispersion is more robust than measures based on the reservation wage, due to the long left tail of the wage distribution. We estimate this wage differential using data on match quality and allow for measurement error. The estimated wage dispersion and mismatch for the US is consistent with an unemployment rate of 4-6%. We find that without search frictions, output would be between 7.5% and 18.5% higher, depending on whether or not firms can ex ante commit to wage payments.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3359.

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Date of creation: 2011
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Handle: RePEc:ces:ceswps:_3359

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Keywords: on-the-job search; wage dispersion; mismatch; output loss due to frictions;

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References

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As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Sorting and the Output Loss due to Search Frictions
    by Christian Zimmermann in NEP-DGE blog on 2011-03-01 03:27:44
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Cited by:
  1. Xiaoming Cai & Pieter A. Gautier & Makoto Watanabe, 2012. "Collective versus Decentralized Wage Bargaining and the Efficient Allocation of Resources," Tinbergen Institute Discussion Papers 12-086/3, Tinbergen Institute.
  2. William Hawkins, 2013. "Worker Flows under Mismatch," 2013 Meeting Papers 479, Society for Economic Dynamics.
  3. Jeremy Lise & Costas Meghir & Jean-Marc Robin, 2013. "Mismatch, Sorting and Wage Dynamics," Cowles Foundation Discussion Papers 1886, Cowles Foundation for Research in Economics, Yale University.

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