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Discussion Paper Details

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Title: The Effect of Search Frictions on Wages

Author(s): Gerard van den Berg and Aico van Vuuren

Publication Date: July 2003

Keyword(s): assortative matching, heterogeneity, job durations, labour market imperfections, productivity and sorting

Programme Area(s): Labour Economics

Abstract: Labour market theories allowing for search frictions make marked predictions on the effect of the degree of frictions on wages. Often, the effect is predicted to be negative. Despite the popularity of these theories, this has never been tested. We perform tests with matched worker-firm data. The worker data are informative on individual wages and labour market transitions, and this allows for estimation of the degree of search frictions. The firm data are informative on labour productivity. The matched data provide the skill composition in different markets. Together this allows us to investigate how the mean difference between labour productivity and wages in a market depends on the degree of frictions and other determinants. We correct for worker self-selection into high-wage jobs. Using within-market variation, we also investigate the extent of (and explanations for) positive assortative matching.

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Bibliographic Reference

Berg, G and van Vuuren, A. 2003. 'The Effect of Search Frictions on Wages'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=3979