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Search, mismatch and unemployment

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Author Info
Blázquez, Maite
Jansen, Marcel

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Abstract

This paper explores the efficiency of the equilibrium allocation in a matching model with heterogeneous workers and jobs. In the basic setup there are two types of workers with different skill levels. Both types can perform the simple tasks of unskilled jobs, while the complex tasks of skilled jobs require a high-ability worker. We demonstrate that the equilibrium outcome with random search and ex-post bargaining is never efficient. Under the Hosios condition, the average wage is correct, but bargaining compresses the wage distribution relative to workers' shadow values. This feature distorts the relative profits of jobs, making it too attractive for firms to create skilled jobs. Furthermore, due to the low-skill premium, the high-ability workers may accept too many jobs. Finally, in an extension, we show that the introduction of separate markets for the two types of jobs is not sufficient to guarantee efficiency.

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Publisher Info
Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 52 (2008)
Issue (Month): 3 (April)
Pages: 498-526
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Handle: RePEc:eee:eecrev:v:52:y:2008:i:3:p:498-526

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Samuel Danthine, 2005. "Two-Sided Search, Heterogeneous Skills and Labor Market Performance," IZA Discussion Papers 1572, Institute for the Study of Labor (IZA). [Downloadable!]
  2. Kevin Lang & William T. Dickens, 1993. "Bilateral Search as an Explanation for Labor Market Segmentation and Other Anomalies," NBER Working Papers 4461, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Robert Shimer & Lones Smith, 2000. "Assortative Matching and Search," Econometrica, Econometric Society, vol. 68(2), pages 343-370, March.
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  4. Bondonio, Daniele, 2002. "Evaluating the Employment Impact of Business Incentive Programs in EU Disadvantaged Areas. A case from Northern Italy," P.O.L.I.S. department's Working Papers 27, Department of Public Policy and Public Choice - POLIS. [Downloadable!]
  5. Maite Blázquez & Marcel Jansen, 2003. "Efficiency In A Matching Model With Heterogeneous Agents: Too Many Good Or Bad Jobs?," Economics Working Papers we035019, Universidad Carlos III, Departamento de Economía. [Downloadable!]
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  6. Acemoglu, Daron, 1996. "Changes in Unemployment and Wage Inequality: An Alternative Theory and Some Evidence," CEPR Discussion Papers 1459, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  7. Moen, Espen R, 1997. "Competitive Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 385-411, April.
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  8. James Albrecht & Susan Vroman, 2002. "A Matching Model with Endogenous Skill Requirements," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(1), pages 283-305, February. [Downloadable!] (restricted)
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  9. Sattinger, Michael, 1995. "Search and the Efficient Assignment of Workers to Jobs," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(2), pages 283-302, May. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Stéphane Auray & Samuel Danthine, 2009. "Bargaining Frictions, Labor Income Taxation, and Economic Performance," Cahiers de recherche 09-20, Departement d'Economique de la Faculte d'administration à l'Universite de Sherbrooke. [Downloadable!]
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