How Large are Search Frictions?
Pieter A. Gautier
Free University of Amsterdam; Tinbergen Institute Amsterdam (TIA); Institute for the Study of Labor (IZA)
Coen N. Teulings
University of Cambridge; University of Amsterdam - SEO Economic Research; Tinbergen Institute; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); Institute for the Study of Labor (IZA)
March 12, 2003
Tinbergen Institute Discussion Paper No. 03-026/3
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 6 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.
Number of Pages in PDF File: 36
Keywords: wages, search, assignment
JEL Classification: J210, J300, J600, J230working papers series
Date posted: June 9, 2003
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