In this paper we build a two-tiered search model of enterprises and workers under incomplete information in the labor market to studythe effect of search cost on the final equilibrium wage. The ultimate realized wage is determined bythe potential wage levels and search costs of workers and enterprises. The deviation of the realized wage from the potential wage reflects the efficiencylos due to information incomplete. Empirical evidence from the two-tiered stochastic frontier analysis shows that search costs can explain 62% of the realized wage in the wage dispersion and the total search cost makes the wage 6.64% higher than the potential wage. These results reflect the problem of rural worker shortageand recruitment difficultiesaround 2008in China.

 

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