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The Effect of Search Frictions on Wages

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  • Gerard J. van den Berg

    ()
    (Vrije Universiteit Amsterdam)

  • Aico van Vuuren

    ()
    (Vrije Universiteit Amsterdam)

Abstract

This discussion paper resulted in a publication in 'Labour Economics' , 17(6), 875-85. Labor 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 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 provide 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. 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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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 06-077/3.

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Date of creation: 06 Sep 2006
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Handle: RePEc:dgr:uvatin:20060077

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Web page: http://www.tinbergen.nl

Related research

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

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References

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