www.econstor.eu Matching Frictions, E¢ ciency Wages, and Unemployment in the USA and the UK

This paper combines matching frictions with e¢ ciency wages to deter shirking in a model that is estimated for the USA and the UK to derive the underlying structural parameters. Methods robust to weak instruments are used to show that, for both countries, both matching frictions and e¢ ciency wages play a signi…cant role in enabling the model to …t the data even with non-prescriptive formulations for wage determination. The results indicate that adding an e¢ ciency wage element to matching frictions may be a better way to …t the data than simply searching for an alternative wage formulation. Keywords: Matching frictions, e¢ ciency wages, unemployment, shirking, robust inference JEL classi…cation: E2, J3, J6

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