Structural and Frictional Unemployment in an Equilibrium Search Model with Heterogeneous Agents.

We specify and estimate an equilibrium search model with between-market heterogeneity in the productivity levels. The model allows for two types of unemployment: unemployment due to search frictions and unemployment due to wage floors. Wage floors may exist, because of large unemployment benefits or a binding (mandatory) minimum wage. Using data on labor market histories for a sample of Dutch workers, we decompose the total unemployment rate in a structural and frictional unemployment rate. We also discuss the effect of changes in the minimum wage. Copyright 1995 by John Wiley & Sons, Ltd.