← Search

American Economic Review Vol. 101 No. 7 2011

Frictional Wage Dispersion in Search Models: A Quantitative Assessment

Andreas Hornstein1; Per Krusell2; Giovanni L. Violante3

1 Federal Reserve Bank of Richmond, P.O. Box 27622, Richmond, VA 23261. · 2 Institute for International Economic Studies, Stockholm University, SE 106 91 Stockholm, Sweden, CEPR, and NBER. · 3 Department of Economics, New York University, 19 W. 4th Street, New York, NY 10012-1119, CEPR and NBER.

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.

DOI
10.1257/aer.101.7.2873
Volume
101
Issue
7
Pages
2873-2898
Language
en
Sources
openalex bibtex:phds-export.bib crossref

Cite