Wage Dispersion, Job Vacancies and Job Search in Equilibrium.

In his survey, "Models of Market Organization with Imperfect Information", Michael Rothschild paraphrases a colleague's views on the importance of imperfect information. "The friction caused by disequilibrium and lack of information accounts for variations in the numbers we observe at the fifth or sixth decimal place. Your stories are interesting but have no conceivable bearing on any question of practical economic interest" (Rothschild, 1973, p. 1283). This same conviction led to the present paper. We simply did not believe that plausible imperfections in workers' market information would result in significant search activity, wage dispersion and job vacancies. Clearly, search would result if wage dispersion were great enough. But it seemed to us that, if firms responded rationally to workers' search behavior the resulting wage dispersion would not be great enough to induce significant search. [ABSTRACT FROM AUTHOR]