Estimating Models of On-the-Job Search Using Record Statistics

This paper proposes a methodology for estimating job search models that does not require either functional form assumptions or ruling out the presence of unobserved variation in worker ability. In particular, building on existing results from record-value theory, a branch of statistics that deals with the timing and magnitude of extreme values in sequences of random variables, I show how we can use wage data to identify the distribution from which workers search. Applying this insight to wage data in the NLSY dataset, I show that the data supports the hypothesis that the wage offer distribution is Pareto, but not that it is lognormal.