Estimates of the structural parameters of a job separation model derived from the theory of on-the-job search are reported in this paper. Given that each employer pays the same wage to observably equivalent workers but wages are dispersed across employers, the theory implies that an employer's separation flow is the sum of an exogenous outflow unrelated to the wage paid and a job-to-job flow that decreases with the employer's wage. The specification estimated allows worker search effort to depend on the wage currently earned. The empirical results imply that search effort declines with the wage paid, as the theory predicts, using Danish IDA data for the years 1994-1995. Furthermore, the estimates for the full sample and four occupational sub-samples explain the employment effect, defined as the horizontal difference between the distribution of wages earned and the distribution of wages offered. * Henrik Hansen, Thomas Hansen and Rikke Ledager provided valuable research assistance on this project.

have given us useful ideas and comments. Henning Bunzel has been invaluable in the development of the data we use. We acknowledge financial support from LMDG and CAP, Aarhus University (LMDG is a Dale T. Mortensen Visiting Niels Bohr professorship project funded by the Danish National Research Foundation; CAP is a research unit funded by the Danish Council for Independent Research). The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

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Productivity dispersion across firms is large and persistent, and worker reallocation among firms is an important source of productivity growth. The purpose of the paper is to estimate the structure of an equilibrium model of growth through innovation that explains these facts. The model is a modified version of the Schumpeterian theory of firm evolution and growth developed by Klette and Kortum (2004). The data set is a panel of Danish firms than includes information on value added, employment, and wages. The model's fit is good and the structural parameter estimates have interesting implications for the aggregate growth rate and the contribution of worker reallocation to it.