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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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Web page: http://www.elsevier.com/locate/eer

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References

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  1. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877.
  2. 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.
  3. Shimer, R. & Smith, L., 1998. "Assortive Matching and Search," Papers 98-09, Michigan - Center for Research on Economic & Social Theory.
  4. Acemoglu, Daron, 2001. "Good Jobs versus Bad Jobs," Journal of Labor Economics, University of Chicago Press, vol. 19(1), pages 1-21, January.
  5. Dolado, Juan J. & Jansen, Marcel & Jimeno, Juan Francisco, 2003. "On-the-Job Search in a Matching Model with Heterogeneous Jobs and Workers," CEPR Discussion Papers 4094, C.E.P.R. Discussion Papers.
  6. Marimon, Ramon & Zilibotti, Fabrizio, 1999. "Unemployment vs. Mismatch of Talents: Reconsidering Unemployment Benefits," Economic Journal, Royal Economic Society, vol. 109(455), pages 266-91, April.
  7. Daron Acemoglu, 1998. "Changes in Unemployment and Wage Inequality: An Alternative Theory and Some Evidence," NBER Working Papers 6658, National Bureau of Economic Research, Inc.
  8. James Albrecht & Susan Vroman, 2000. "A Matching Model with Endogenous Skill Requirements," Econometric Society World Congress 2000 Contributed Papers 0774, Econometric Society.
  9. 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.
  10. Pieter A. Gautier, 2001. "The Right Man for the Job," CESifo Working Paper Series 540, CESifo Group Munich.
  11. Inderst, Roman, 2005. "Competitive search markets with heterogeneous workers," European Economic Review, Elsevier, vol. 49(6), pages 1525-1542, August.
  12. 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).
  13. Shi, Shouyong, 2001. "Frictional Assignment. I. Efficiency," Journal of Economic Theory, Elsevier, vol. 98(2), pages 232-260, June.
  14. Danthine, Samuel, 2005. "Two-Sided Search, Heterogeneous Skills and Labor Market Performance," IZA Discussion Papers 1572, Institute for the Study of Labor (IZA).
  15. 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.
  16. Robert Shimer & Lones Smith, 2001. "Matching, Search, and Heterogeneity," The B.E. Journal of Macroeconomics, De Gruyter, vol. 0(1), pages 5.
  17. Robert Shimer, 2001. "The Assignment of Workers to Jobs In an Economy with Coordination Frictions," NBER Working Papers 8501, National Bureau of Economic Research, Inc.
  18. Kevin Lang & William T. Dickens, 1992. "Labor Market Segmentation, Wage Dispersion and Unemployment," NBER Working Papers 4073, National Bureau of Economic Research, Inc.
  19. Lucas, Robert Jr. & Prescott, Edward C., 1974. "Equilibrium search and unemployment," Journal of Economic Theory, Elsevier, vol. 7(2), pages 188-209, February.
  20. Moen, Espen R, 1997. "Competitive Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 385-411, April.
  21. 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.
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