A Two-tiered Earnings Frontier Estimation of Employer and Employee Information in the Labor Market

Solomon Polachek and Bong Yoon

The Review of Economics and Statistics, 1987, vol. 69, issue 2, 296-302

Abstract: This pap er develops a "two-tiered frontier" estimation procedure to decompose the residual of an earnings function into three components. The first component can be interpreted as being purely random. Search theory is used to show that the other two components represent employee and employer ignorance of offer and reservation wages respectively. Relative employee and employer ignorance estimates are presented for various population strata. Copyright 1987 by MIT Press.

Date: 1987
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