Employee labor market information: Comparing direct world of work measures of workers' knowledge to stochastic frontier estimates

A number of papers use stochastic frontier estimation to measure a worker's incomplete information about available wages. These papers define incomplete information as the difference between a worker's wage and his or her maximum potential wage. Many question this approach since it essentially measures incomplete information as a residual, without independent evidence relating this residual to incomplete information. This paper introduces independent direct measures of workers' knowledge of the world of work obtained from the National Longitudinal Survey of Young Men (NLSYM). Frontier estimates of incomplete information are compared to the direct measures of workers' knowledge. The results verify that stochastic frontier estimates provide a reasonable measure of a worker's incomplete wage information.