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Frictional wage dispersion in search models: A quantitative assessment

Author(s): Hornstein, A; Krusell, P; Violante, Giovanni L.

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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.
Publication Date: Dec-2011
Citation: Hornstein, A, Krusell, P, and Violante, GL. (2011). Frictional wage dispersion in search models: A quantitative assessment. American Economic Review, 101 (7), 2873 - 2898. doi:10.1257/aer.101.7.2873
DOI: doi:10.1257/aer.101.7.2873
ISSN: 0002-8282
Pages: 2873 - 2898
Type of Material: Journal Article
Journal/Proceeding Title: American Economic Review
Version: Final published version. Article is made available in OAR by the publisher's permission or policy.

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