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The effect of search frictions on wages

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  • van den Berg, Gerard J.

    ()
    (IFAU - Institute for labour market policy evaluation)

  • van Vuuren, Aico

    (Erasmus University Amsterdam)

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 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 IFAU - Institute for Evaluation of Labour Market and Education Policy in its series Working Paper Series with number 2003:12.

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Length: 55 pages
Date of creation: 17 Jun 2003
Date of revision:
Publication status: Published as van den Berg, Gerard J. and Aico van Vuuren, 'The effect of search frictions on wages' in Labour Economics, 2010, pages 875-885.
Handle: RePEc:hhs:ifauwp:2003_012

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

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