published in: Journal of Econometrics, 2007, 136 (2), 531-564
This paper surveys the existing empirical research that uses search theory to empirically
analyze labor supply questions in a structural framework, using data on individual labor
market transitions and durations, wages, and individual characteristics. The starting points of
the literature are the Mincerian earnings function, Heckman's classic selection model, and
dynamic optimization theory. We develop a general framework for the labor market where the
search for a job involves dynamic decision making under uncertainty. It can be specialized to
be in agreement with most published research using labor search models. We discuss
estimation, policy evaluation with the estimated model, equilibrium model versions, and the
decomposition of wage variation into factors due to heterogeneity of various model
determinants as well as search frictions themselves. We summarize the main empirical
conclusions.
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