How Large are Search Frictions?
Pieter A. Gautier
Free University of Amsterdam; Tinbergen Institute Amsterdam (TIA); IZA Institute of Labor Economics
Coen N. Teulings
University of Amsterdam; University of Cambridge
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, J230
Date posted: June 9, 2003