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Search, mismatch and unemployment

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  • Blázquez, Maite
  • Jansen, Marcel

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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Bibliographic 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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  1. 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.
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  4. Moen, E.R., 1995. "Competitive Search Equilibrium," Memorandum 37/1995, Oslo University, Department of Economics.
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  10. Mortensen, Dale T & Pissarides, Christopher A, 1999. "Unemployment Responses to 'Skill-Biased' Technology Shocks: The Role of Labour Market Policy," Economic Journal, Royal Economic Society, vol. 109(455), pages 242-65, April.
  11. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 279-98, April.
  12. Shi, Shouyong, 2001. "Frictional Assignment. I. Efficiency," Journal of Economic Theory, Elsevier, vol. 98(2), pages 232-260, June.
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  15. Shimer Robert & Smith Lones, 2001. "Matching, Search, and Heterogeneity," The B.E. Journal of Macroeconomics, De Gruyter, vol. 1(1), pages 1-18, April.
  16. Danthine, Samuel, 2005. "Two-Sided Search, Heterogeneous Skills and Labor Market Performance," IZA Discussion Papers 1572, Institute for the Study of Labor (IZA).
  17. Blázquez Cuesta, Maite & Jansen, Marcel, 2003. "Efficiency in a Matching Model with Heterogeneous Agents: Too Many Good or Bad Jobs?," IZA Discussion Papers 968, Institute for the Study of Labor (IZA).
  18. Lucas, Robert Jr. & Prescott, Edward C., 1974. "Equilibrium search and unemployment," Journal of Economic Theory, Elsevier, vol. 7(2), pages 188-209, February.
  19. James Albrecht & Susan Vroman, 2000. "A Matching Model with Endogenous Skill Requirements," Econometric Society World Congress 2000 Contributed Papers 0774, Econometric Society.
  20. Acemoglu, Daron, 2001. "Good Jobs versus Bad Jobs," Journal of Labor Economics, University of Chicago Press, vol. 19(1), pages 1-21, January.
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  23. Moen, Espen R, 2002. "Do Good Workers Hurt Bad Workers - or is it the Other Way Around?," CEPR Discussion Papers 3471, C.E.P.R. Discussion Papers.
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