A Structural Analysis of Job Search Methods and Subsequent Wages

In most studies on individual labor market transitions, the search process leading to job offers is a black box. In this paper we specify and estimate a search model that distinguishes between formal (applications) and informal (referrals) search methods. Job offers can be obtained by either method, and the corresponding wage offer distributions are allowed to differ. The model allows for search during unemployment as well as search on the job. We conclude that al though the method by which jobs are found varies considerably with education and occupation, the use of a particular search method does not result in a higher wage. Moreover, individuals who have an advantage in informal search do not find a job more rapidly, which casts doubt on the hypothesis that the search method is freely chosen by the searcher by comparing costs and returns. *Department of Economics, Free University Amsterdam. ‘Department of Economics, Free University Amsterdam, De Boelelaan 1105, NL-1081 HV Amsterdam, The Netherlands; CEPR, and Tinbergen Institute. tDepartment of Economics, Free University Amsterdam, and Tinbergen Institute. We thank participants of the CEPR conference on Labor Market Changes and Income Dy* namics for comments. The Organization for Strategic Labor Market Research (OSA) allowed us to use the OSA panel data.