ESTIMATION OF EQUILIBRIUM WAGE DISTRIBUTIONS WITH HETEROGENEITY

Equilibrium search models generalize the one-sided models used earlier by endogenizing the wage offer distribution. Attempts to estimate ver sions of these equilibrium n search models have been unsuccessful, iro nically because the predicted wage distribution did not fit the wage d ata. In this paper we extend the applicability of search models by int roducing firm heterogeneity to account for the shape of the wage densi ty. The resulting estimation problem is difficult, but we propose a so lution and illustrate its feasibility and performance with a Monte Car lo study and an application to US labour market data.