Frictional Wage Dispersion in Search Models: A Quantitative Assessment
American Economic Review
vol. 101,
no. 7, December 2011
(pp. 2873-98)
Abstract
We propose a new measure of frictional wage dispersion: the mean-min wage ratio. For a large class of search models, we show that this measure is independent of the wage-offer distribution but depends on statistics of labor-market turnover and on preferences. Under plausible preference parameterizations, observed magnitudes for worker flows imply that in the basic search model, and in most of its extensions, frictional wage dispersion is very small. Notable exceptions are some of the most recent models of on-the-job search. Our new measure allows us to rationalize the diverse empirical findings in the large literature estimating structural search models. (JEL D81, D83, J31, J41, J64)Citation
Hornstein, Andreas, Per Krusell, and Giovanni L. Violante. 2011. "Frictional Wage Dispersion in Search Models: A Quantitative Assessment." American Economic Review, 101 (7): 2873-98. DOI: 10.1257/aer.101.7.2873Additional Materials
JEL Classification
- D81 Criteria for Decision-Making under Risk and Uncertainty
- D83 Search; Learning; Information and Knowledge; Communication; Belief
- J31 Wage Level and Structure; Wage Differentials
- J41 Labor Contracts
- J64 Unemployment: Models, Duration, Incidence, and Job Search