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The Effect of Search Frictions on Wages

Author

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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.

Suggested Citation

  • Gerard J. van den Berg & Aico van Vuuren, 2006. "The Effect of Search Frictions on Wages," Tinbergen Institute Discussion Papers 06-077/3, Tinbergen Institute.
  • Handle: RePEc:tin:wpaper:20060077
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    5. Paulo Guimarães & Pedro Portugal & Sónia Torres, 2013. "The sources of wage variation: a three-way high-dimensional fixed effects regression model," Working Papers w201309, Banco de Portugal, Economics and Research Department.
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    10. Webber, Douglas A., 2015. "Firm market power and the earnings distribution," Labour Economics, Elsevier, vol. 35(C), pages 123-134.
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    12. Pieter Gautier & Paul Muller & Bas van der Klaauw & Michael Rosholm & Michael Svarer, 2018. "Estimating Equilibrium Effects of Job Search Assistance," Journal of Labor Economics, University of Chicago Press, vol. 36(4), pages 1073-1125.
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    14. Garloff, Alfred, 2010. "Minimum wages, wage dispersion and unemployment in search models : a review," Zeitschrift für ArbeitsmarktForschung - Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 43(2), pages 145-167.
    15. Fontaine, François, 2008. "Why are similar workers paid differently? the role of social networks," Journal of Economic Dynamics and Control, Elsevier, vol. 32(12), pages 3960-3977, December.
    16. Mendes, Rute & van den Berg, Gerard J. & Lindeboom, Maarten, 2010. "An empirical assessment of assortative matching in the labor market," Labour Economics, Elsevier, vol. 17(6), pages 919-929, December.
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    19. Garloff, Alfred, 2003. "Lohndispersion und Arbeitslosigkeit: Neuere Ansätze in der Suchtheorie," ZEW Discussion Papers 03-60, ZEW - Leibniz Centre for European Economic Research.
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    More about this item

    Keywords

    labor market imperfections; job durations; productivity; heterogeneity; sorting; assortative matching;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets

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