Imperfect information

The essential point here is that the acquisition of information in the labor market through job search is costly in terms of both direct out-of-pocket costs and the opportunity cost of the time devoted to it. While each worker would like to obtain the highest paying job possible beyond some point the additional search costs from contacting yet another firm will surpass the probability of finding a higher wage offer. Rather than searching in the labor market until the highest wage is found the worker will find it profitable to search only until he or she finds a job paying a wage equal to or greater than some minimum acceptable wage. With imperfect information in an otherwise perfectly competitive market two identical workers may be paid different wages.

Part of the dispersion in earning may be the result of the imperfect information. In addition search costs prevent the process of labor mobility from fully competing away differences in wages among similar jobs in the labor market.