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How Large are Search Frictions?

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  • Teulings, Coen
  • Gautier, Pieter

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.

Suggested Citation

  • Teulings, Coen & Gautier, Pieter, 2005. "How Large are Search Frictions?," CEPR Discussion Papers 5229, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:5229
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    More about this item

    Keywords

    Wage differentials; Search; Assignment;
    All these keywords.

    JEL classification:

    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General

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