A Cross-Country Comparison of Labor Market Frictions

Abstract

In this paper we define and estimate measures of labor market imperfection in the context of an equilibrium search and matching framework. The method uses readily available data on distributions of unemployment and job durations and wages. We estimate an index of search frictions, the magnitude of structural and frictional unemployment, and the average monopsony power of firms, and we examine the effect of the minimum wage, unemployment benefits and search frictions on monopsony power. Estimation of some of the characteristics is invariant to the way in which wage determination is modeled. We perform separate empirical analyses for the USA, the UK, France, Germany and the Netherlands.

Keywords: Wages, search frictions, cross-country comparisons, unemployment, monopsony power, minimum wage, job search, mobility, productivity