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The Effect of Search Frictions on Wages

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Author Info
van den Berg, Gerard J
van Vuuren, Aico

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Abstract

Labour market theories allowing 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. The worker data are informative on individual wages and labour market transitions, and this allows for estimation of the degree of search frictions. The firm data are informative on labour productivity. The matched data provide the skill composition in different markets. Together this allows us to investigate how the mean difference between labour productivity and wages in a market depends on the degree of frictions and other determinants. We correct for worker self-selection into high-wage jobs. Using within-market variation, we also investigate the extent of (and explanations for) positive assortative matching.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3979.

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Date of creation: Jul 2003
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Handle: RePEc:cpr:ceprdp:3979

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

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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. 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!]
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