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The Effect of Search Frictions on Wages

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Author Info
Gerard J. van den Berg (Free University Amsterdam)
Aico van Vuuren (Free University Amsterdam)

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Abstract

Labor market theories that allow for search frictions make marked predictions on the effect of the degree of frictions on wages. Often, the effect is predicted to be negative. Despite the popularity of these theories, this has never been tested. We perform tests with matched worker-firm data. We effectively compare different markets with different degrees of frictions and different market outcomes. The worker data are informative on individual wages and labor market transitions, and this allows for estimation of the degree of search frictions. The firm data are informative on labor productivity. The matched data allow for an assessment of the skill composition in different markets. Together this allows us to investigate how the mean difference between labor productivity and wages in a market depends on the degree of frictions and other determinants. Using within-market variation, we also investigate the extent of (and explanations for) positive assortative matching. We perform separate analyses for The Netherlands and Denmark.

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Paper provided by International Conferences on Panel Data in its series 10th International Conference on Panel Data, Berlin, July 5-6, 2002 with number C1-2.

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Date of creation: Mar 2002
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Handle: RePEc:cpd:pd2002:c1-2

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Keywords: labor market imperfections job durations productivity heterogeneity sorting assortative matching

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  1. Garloff, Alfred, 2003. "Lohndispersion und Arbeitslosigkeit: Neuere Ansätze in der Suchtheorie," ZEW Discussion Papers 03-60, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
  2. François Fontaine, 2005. "Why Are Similar Workers Paid Differently? The Role of Social Networks," IZA Discussion Papers 1786, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
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