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The Effect of Search Frictions on Wages

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Author Info
van den Berg, Gerard J. () (Free University of Amsterdam, Tinbergen Institute, IFAU-Uppsala, INSEE-CREST, CEPR and IZA Bonn)
van Vuuren, Aico (Erasmus University Rotterdam)

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Abstract

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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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 805.

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Length: 59 pages
Date of creation: Jun 2003
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Handle: RePEc:iza:izadps:dp805

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

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Find related papers by JEL classification:
J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
J6 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies
J4 - Labor and Demographic Economics - - Particular Labor Markets
C5 - Mathematical and Quantitative Methods - - Econometric Modeling

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Full references

Cited by:
(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. 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:
  2. 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!]
  3. Paul Frijters, 2001. "Unemployment benefits and educational choices," Paul Frijters Discussion Papers 2001, School of Economics and Finance, Queensland University of Technology. [Downloadable!]
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