This paper presents strong evidence for the concavity of wages in job and worker
characteristics by adding second order terms to a Mincerian earnings function. Under
a standard normality assumption, this concavity cannot be attributed to unobserved
components in either of these characteristics. A search model provides a
parsimonious explanation for our findings. This model yields two restrictions on
the coe.cients which fit the data very well. Search frictions have a large impact on
wages. Our results relate to the literatures on industry wage di.erentials, on structural
identification in hedonic models, and on wage posting versus Nash bargaining
in search models. |