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Information Externalities in the Labour Market and the Duration of Unemployment

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Lockwood, Ben

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Abstract

A matching model is analyzed in which firms imperfectly test workers prior to hiring them. If (some) firms hire only workers who pass the test, there is an informational externality; unemployment duration is a signal of productivity. In equilibrium, if it is profitable for a firm to test, it is also profitable for it to condition its hiring decision on duration, hiring those whose duration is less a than critical value. Sensitivity analysis of the latter suggests explanations for the dependence of reemployment probabilities on duration and the instability of the U-V curve. Copyright 1991 by The Review of Economic Studies Limited.

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Publisher Info
Article provided by Blackwell Publishing in its journal Review of Economic Studies.

Volume (Year): 58 (1991)
Issue (Month): 4 (July)
Pages: 733-53
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Handle: RePEc:bla:restud:v:58:y:1991:i:4:p:733-53

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