How Large are Search Frictions?

39 Pages Posted: 3 Jun 2003

See all articles by Pieter A. Gautier

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

Multiple version iconThere are 2 versions of this paper

Date Written: October 2005

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.

JEL Classification: J21, J210, J23, J30, J300, J60

Suggested Citation

Gautier, Pieter A. and Teulings, Coen N., How Large are Search Frictions? (October 2005). Available at SSRN: https://ssrn.com/abstract=413383

Pieter A. Gautier

Free University of Amsterdam ( email )

Amsterdam, ND North Holland
Netherlands

Tinbergen Institute Amsterdam (TIA) ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Coen N. Teulings (Contact Author)

University of Amsterdam ( email )

Spui 21
Amsterdam, 1018 WB
Netherlands

University of Cambridge ( email )

Trinity Ln
Cambridge, CB2 1TN
United Kingdom

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