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Frictional wage dispersion in search models: a quantitative assessment

Hornstein, Andreas, Krusell, Per and Violante, Giovanni L (2011) Frictional wage dispersion in search models: a quantitative assessment. American Economic Review, 101 (7). pp. 2873-2898. ISSN 0002-8282

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Identification Number: 10.1257/aer.101.7.2873

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.

Item Type: Article
Official URL: https://www.aeaweb.org/aer/index.php
Additional Information: © 2011 American Economic Association
Divisions: Economics
Subjects: H Social Sciences > HJ Public Finance
JEL classification: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D81 - Criteria for Decision-Making under Risk and Uncertainty
D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D83 - Search; Learning; Information and Knowledge; Communication; Belief
J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J31 - Wage Level and Structure; Wage Differentials by Skill, Training, Occupation, etc.
J - Labor and Demographic Economics > J4 - Particular Labor Markets > J41 - Contracts: Specific Human Capital, Matching Models, Efficiency Wage Models, and Internal Labor Markets
J - Labor and Demographic Economics > J6 - Mobility, Unemployment, and Vacancies > J64 - Unemployment: Models, Duration, Incidence, and Job Search
Sets: Departments > Economics
Date Deposited: 18 Aug 2014 11:23
Last Modified: 20 Feb 2019 10:00
Funders: National Science Foundation
URI: http://eprints.lse.ac.uk/id/eprint/57242

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