Frictional Wage Dispersion in Search Models: A Quantitative Assessment

Andreas Hornstein, Per Krusell and Giovanni Violante

American Economic Review, 2011, vol. 101, issue 7, 2873-98

Abstract: We propose a new measure of frictional wage dispersion: the mean-min wage ratio. For a large class of search models, we show that this measure is independent of the wage-offer distribution but depends on statistics of labor-market turnover and on preferences. Under plausible preference parameterizations, observed magnitudes for worker flows imply that in the basic search model, and in most of its extensions, frictional wage dispersion is very small. Notable exceptions are some of the most recent models of on-the-job search. Our new measure allows us to rationalize the diverse empirical findings in the large literature estimating structural search models. (JEL D81, D83, J31, J41, J64)

Date: 2011
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Working Paper: Frictional Wage Dispersion in Search Models: A Quantitative Assessment (2007)
Working Paper: Frictional wage dispersion in search models: a quantitative assessment (2006)
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