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How Large are Search Frictions

  • Pieter Gautier
  • Coen Teulings

    ()

    (SEO University of Amsterdam)

This Paper presents strong evidence for the concavity of wages in job and worker characteristics by adding second order terms to a Mincerian earnings function for six OECD countries. Under a standard normality assumption, this concavity cannot be attributed to unobserved components in those characteristics. An assignment model with search frictions provides a parsimonious explanation for our findings. This model yields two restrictions on the coefficients, which fit the data very well. The impact of search frictions on wages is large. Our results relate to the literature on industry wage differentials, on structural identification in hedonic models, and on wage posting versus Nash bargaining in search models.

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Paper provided by Society for Economic Dynamics in its series 2005 Meeting Papers with number 175.

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Date of creation: 2005
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Handle: RePEc:red:sed005:175
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  1. John M. Abowd & Francis Kramarz & David N. Margolis, 1999. "High Wage Workers and High Wage Firms," Econometrica, Econometric Society, vol. 67(2), pages 251-334, March.
  2. Jovanovic, Boyan, 1979. "Job Matching and the Theory of Turnover," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 972-90, October.
  3. Shimer, R. & Smith, L., 1997. "Assortative Matching and Search," Working papers 97-2b, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. Ekeland, Ivar & Heckman, James J. & Nesheim, Lars, 2003. "Identification and Estimation of Hedonic Models," IZA Discussion Papers 853, Institute for the Study of Labor (IZA).
  5. Coen N. Teulings, 2005. "Comparative Advantage, Relative Wages, and the Accumulation of Human Capital," Journal of Political Economy, University of Chicago Press, vol. 113(2), pages 425-461, April.
  6. Angrist, Joshua D & Krueger, Alan B, 1991. "Does Compulsory School Attendance Affect Schooling and Earnings?," The Quarterly Journal of Economics, MIT Press, vol. 106(4), pages 979-1014, November.
  7. Katz, L.F. & Murphy, K.M., 1991. "Changes in Relative Wages, 1963-1987: Supply and Demand Factors," Harvard Institute of Economic Research Working Papers 1580, Harvard - Institute of Economic Research.
  8. Coen N. Teulings & Pieter A. Gautier, 2004. "The Right Man for the Job," Review of Economic Studies, Oxford University Press, vol. 71(2), pages 553-580.
  9. Fabien Postel-Vinay & Jean-Marc Robin, 2002. "Equilibrium wage dispersion with worker and employer heterogeneity," Sciences Po publications info:hdl:2441/dc0ckec3fcb, Sciences Po.
  10. Teulings, Coen N, 1995. "The Wage Distribution in a Model of the Assignment of Skills to Jobs," Journal of Political Economy, University of Chicago Press, vol. 103(2), pages 280-315, April.
  11. Kahn, Shulamit & Lang, Kevin, 1988. "Efficient Estimation of Structural Hedonic Systems," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 29(1), pages 157-66, February.
  12. Berg, G.J. & Ridder, G., 1993. "An empirical equilibrium search model of the labour market," Serie Research Memoranda 0039, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
  13. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
  14. Kenneth Burdett & Dale T. Mortensen, 1989. "Equilibrium Wage Differentials and Employer Size," Discussion Papers 860, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  15. William T. Dickens & Lawrence F. Katz, 1987. "Inter-Industry Wage Differences and Theories of Wage Determination," NBER Working Papers 2271, National Bureau of Economic Research, Inc.
  16. Gautier, Pieter A. & Teulings, Coen & van Vuuren, Aico, 2005. "On-The-Job Search and Sorting," IZA Discussion Papers 1687, Institute for the Study of Labor (IZA).
  17. Abowd, John M & Lemieux, Thomas, 1993. "The Effects of Product Market Competition on Collective Bargaining Agreements: The Case of Foreign Competition in Canada," The Quarterly Journal of Economics, MIT Press, vol. 108(4), pages 983-1014, November.
  18. repec:dgr:uvatin:20020081 is not listed on IDEAS
  19. Bound, John & Krueger, Alan B, 1991. "The Extent of Measurement Error in Longitudinal Earnings Data: Do Two Wrongs Make a Right?," Journal of Labor Economics, University of Chicago Press, vol. 9(1), pages 1-24, January.
  20. John M. Abowd (corresponding) & Francis Kramarz, 2004. "Are Good Workers Employed by Good Firms? A Simple Test of Positive Assortative Matching Models," Econometric Society 2004 North American Winter Meetings 385, Econometric Society.
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  22. Heckman, James J & Sedlacek, Guilherme, 1985. "Heterogeneity, Aggregation, and Market Wage Functions: An Empirical Model of Self-selection in the Labor Market," Journal of Political Economy, University of Chicago Press, vol. 93(6), pages 1077-1125, December.
  23. repec:dgr:uvatin:19980095 is not listed on IDEAS
  24. Krueger, Alan B & Summers, Lawrence H, 1988. "Efficiency Wages and the Inter-industry Wage Structure," Econometrica, Econometric Society, vol. 56(2), pages 259-93, March.
  25. repec:dgr:uvatin:19980089 is not listed on IDEAS
  26. Sattinger, Michael, 1975. "Comparative Advantage and the Distributions of Earnings and Abilities," Econometrica, Econometric Society, vol. 43(3), pages 455-68, May.
  27. repec:dgr:uvatin:2002061 is not listed on IDEAS
  28. Postel-Vinay & Robin, 2002. "Equilibrium wage dispersion with worker and employer heterogeneity," Working Papers 155908, Institut National de la Recherche Agronomique, France.
  29. repec:dgr:uvatin:20050070 is not listed on IDEAS
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