Equilibrium Search with Continuous Productivity Dispersion: Theory and Nonparametric Estimation

In this article we develop an equilibrium search model with a continuous distribution of firm productivity types within a given labor market. We characterize equilibrium, derive expressions for the endogenous equilibrium wage distributions, and characterize the set of wage distributions that can be generated by the model. We develop a structural nonparametric estimation method for the productivity distribution. We estimate the model using French longitudinal survey data on labor supply, and we compare the results with those from a French panel data set of firms. The results are informative on the degree to which firms exploit search frictions.