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The effect of Search Frictions on Wages

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  • Gérard J, Van den Berg

    (Crest)

  • Aico Van Vuuren

    (Crest)

Abstract

Labor market theories allowing for search frictions make marked predic-tions on the e ect of the degree of frictions on wages. Often, the e ect ispredicted to be negative. Despite the popularity of these theories, this hasnever been tested. We perform tests with matched worker- rm data. Theworker data are informative on individual wages and labor market transi-tions, and this allows for estimation of the degree of search frictions. The rm data are informative on labor productivity. The matched data pro-vide the skill composition in di erent markets. Together this allows us toinvestigate how the mean di erence between labor productivity and wagesin a market depends on the degree of frictions and other determinants. Wecorrect for worker self-selection into high-wage jobs. Using within-marketvariation, we also investigate the extent of (and explanations for) positiveassortative matching.

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Paper provided by Centre de Recherche en Economie et Statistique in its series Working Papers with number 2003-29.

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Date of creation: 2003
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Handle: RePEc:crs:wpaper:2003-29

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