Frictional wage dispersion in search models: A quantitative assessment

Andreas Hornstein, Per Krusell, Giovanni L. Violante

    Research output: Contribution to journalArticle

    Abstract

    We propose a new measure of frictional wage dispersion: the meanmin 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.

    Original languageEnglish (US)
    Pages (from-to)2873-2898
    Number of pages26
    JournalAmerican Economic Review
    Volume101
    Issue number7
    DOIs
    StatePublished - Dec 2011

    ASJC Scopus subject areas

    • Economics and Econometrics

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