Events

We propose a way to measure the contribution of search frictions to the level of wage dispersion observed in the data. Using the data from the 1979 cohort of the National Longitudinal Survey of Youth we find that the variance of match qualities between workers and employers accounts for about 12% of the variance of log wages. Our method relies on a minimal set of assumptions, the main among them is that match quality is constant over the duration of a job. We show that this assumption can be verified empirically and is supported by the data.