Wage Dispersion and Search Behavior ∗

We use a rich new body of data on the experiences of unemployed job-seekers to determine the sources of wage dispersion and to create a search model consistent with the acceptance decisions the job-seekers made. From the data and the model, we identify the distributions of four key variables: offered wages, offered non-wage job values, the value of the job-seeker’s non-work alternative, and the job-seeker’s personal productivity. We resolve the tension between the fairly high dispersion of the values jobseekers assign to their job offers—which suggest a high value to sampling from multiple offers—and the fact that the job-seekers often accept the first offer they receive. An influential recent paper by Hornstein, Krusell, and Violante called attention to this tension. Our resolution rests on the job-ladder model, where unemployed job-seekers accept an offer that beats their non-work value, possibly as an interim job, because they continue to seek jobs while working. ∗The Hoover Institution supported Hall’s research. The paper is also part of the National Bureau of Economic Research’s Economic Fluctuations and Growth Program. We are grateful to Steven Davis, Iourii Manovskii, Tamas Papp, Richard Rogerson, and Robert Shimer for valuable comments. An earlier version was titled “Viewing Job-Seekers’ Reservation Wages and Acceptance Decisions through the Lens of Search Theory.”