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How Large are Search Frictions?

Pieter Gautier () and C. N. Teulings ()

No 5229, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper shows that we can normalize job and worker characteristics such that without frictions there exists a linear relationship between wages on the one hand and worker and job type indices on the other. However, for five European countries and the US we find strong evidence for a systematic concave relation. An assignment model with search frictions provides a parsimonious explanation for our findings. This model yields two restrictions on the coefficients that fit the data well. Allowing for unobserved heterogeneity and measurement error we find that reservation wages are 25% lower than they would be in a frictionless world. Our results relate to the literature on industry wage differentials and on structural identification in hedonic models.

Keywords: assignment; search; wage differentials (search for similar items in EconPapers)
JEL-codes: J21 J23 J30 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-lab
Date: 2005-10
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Journal Article: How Large are Search Frictions? (2006) Downloads
Working Paper: How Large are Search Frictions (2005) Downloads
Working Paper: How Large are Search Frictions? (2005) Downloads
Working Paper: How Large are Search Frictions? (2003) Downloads
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