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How Large are Search Frictions?

Author

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  • Pieter A. Gautier

    (Erasmus University of Rotterdam)

  • Coen N. Teulings

    (University of Amsterdam)

Abstract

This paper shows that we can normalize job and worker characteristics so that, without frictions,there exists a linear relationship between wages on the one hand and worker and job type indiceson the other. However, for five European countries and the United States we find strong evidencefor a systematic concave relationship. An assignment model with search frictions provides aparsimonious explanation for our findings. This model yields two restrictions on the coefficientsthat fit the data well. Allowing for unobserved heterogeneity and measurement error, we findthat reservation wages are 25% lower than they would be in a frictionless world. Our resultsrelate to the literature on industry wage differentials and on structural identification in hedonicmodels. See publication in the Journal of the European Economic Association , 2006, 4(6), 1193-1225.

Suggested Citation

  • Pieter A. Gautier & Coen N. Teulings, 2003. "How Large are Search Frictions?," Tinbergen Institute Discussion Papers 03-026/3, Tinbergen Institute, revised 22 Aug 2005.
  • Handle: RePEc:tin:wpaper:20030026
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    References listed on IDEAS

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    More about this item

    Keywords

    wages; search; assignment.;
    All these keywords.

    JEL classification:

    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

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