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The Allocation of Labor and Endogenous Search Decisions

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  • Uren Lawrence

    (University of Melbourne)

Abstract

This paper examines the allocation of heterogeneous workers across sectors of an economy in which workers are able to direct their search towards particular firms. We find that search frictions, in addition to causing unemployment, may result in an inefficient allocation of labor. This result arises because of the interaction between the investment decisions of firms and the search decisions of workers. Despite constant returns to scale in both the matching and production functions, this interaction can generate multiple equilibria. The existence of multiple equilibria is shown to depend crucially on the direction of comparative advantage.

Suggested Citation

  • Uren Lawrence, 2006. "The Allocation of Labor and Endogenous Search Decisions," The B.E. Journal of Macroeconomics, De Gruyter, vol. 6(1), pages 1-31, June.
    • Handle: RePEc:bpj:bejmac:v:topics.6:y:2006:i:1:n:13
    DOI: 10.2202/1534-5998.1424
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    References listed on IDEAS

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    Cited by:

    1. Guillaume Wilemme, 2021. "Optimal Taxation to Correct Job Mismatching," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 40, pages 170-197, April.
    2. Bruno Decreuse, 2008. "Choosy Search And The Mismatch Of Talents," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(3), pages 1067-1089, August.
    3. Merlino, Luca Paolo, 2016. "Efficient Sorting In Frictional Labor Markets With Two-Sided Heterogeneity," Macroeconomic Dynamics, Cambridge University Press, vol. 20(1), pages 95-119, January.
    4. Nicolas L. Jacquet & Serene Tan, 2007. "On the Segmentation of Markets," Journal of Political Economy, University of Chicago Press, vol. 115(4), pages 639-664, August.
    5. Navarro, Lucas, 2011. "Efficiency of two sided investments in an equilibrium unemployment framework," Economic Modelling, Elsevier, vol. 28(3), pages 1090-1098, May.

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