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On the inefficiency of matching models of unemployment with heterogeneous workers and jobs when firms rank their applicants

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  • Gavrel, Frédéric

Abstract

In a circular matching model with bargained wages, firms rank their applicants and pick the most suitable one. Job creation appears to lower the average output. As firms do not internalize this effect, there are too many jobs in a laissez-faire equilibrium under the Hosios condition. By contrast, job rejection is efficient for the equilibrium value of market tightness. Consequently, introducing unemployment compensation raises the aggregate income by lowering market tightness. Due to the isomorphism between the two models, these results extend to match-specific productivities. However, competitive search restores market efficiency.

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 56 (2012)
Issue (Month): 8 ()
Pages: 1746-1758

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Handle: RePEc:eee:eecrev:v:56:y:2012:i:8:p:1746-1758

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

Related research

Keywords: Matching; Differentiation of skills; Match-specific productivities; Applicant ranking; Labor market efficiency;

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References

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  1. Juan J. Dolado & Marcel Jansen & Juan F. Jimeno, 2008. "On the job search in a matching model with heterogeneous jobs and workers," Banco de Espa�a Working Papers 0813, Banco de Espa�a.
  2. Gautier, Pieter A & Teulings, Coen N, 2005. "How Large are Search Frictions?," CEPR Discussion Papers 5229, C.E.P.R. Discussion Papers.
  3. Kennes, John, 2006. "Underemployment, on-the-job search, and the Beveridge curve," Economics Letters, Elsevier, vol. 91(2), pages 167-172, May.
  4. James Albrecht, Pieter Gautier, & Susan Vroman, 2003. "Matching with Multiple Applications: The Limiting Case," Working Papers gueconwpa~03-03-25, Georgetown University, Department of Economics.
  5. Richard Layard & Stephen Nickell, 1992. "Unemployment in the OECD Countries," CEP Discussion Papers dp0081, Centre for Economic Performance, LSE.
  6. Gavrel, Frédéric, 2012. "On the inefficiency of matching models of unemployment with heterogeneous workers and jobs when firms rank their applicants," European Economic Review, Elsevier, vol. 56(8), pages 1746-1758.
  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. Pieter A. Gautier, 2001. "The Right Man for the Job," CESifo Working Paper Series 540, CESifo Group Munich.
  9. Holmlund, Bertil, 1997. "Unemployment Insurance in Theory and Practice," Working Paper Series 1997:25, Uppsala University, Department of Economics.
  10. Pieter A. Gautier, 1999. "Unemployment and Search Externalities in a Model with Heterogeneous Jobs and Heterogeneous Workers," Tinbergen Institute Discussion Papers 99-075/3, Tinbergen Institute.
  11. Moen, Espen R, 1997. "Competitive Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 385-411, April.
  12. James Albrecht & Lucas Navarro & Susan Vroman, 2009. "Efficiency in a Search and Matching Model with Endogenous Participation," ILADES-Georgetown University Working Papers inv218, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines.
  13. 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.
  14. Moen, Espen R, 1999. "Education, Ranking, and Competition for Jobs," Journal of Labor Economics, University of Chicago Press, vol. 17(4), pages 694-723, October.
  15. Albert Ma, Ching-to & Weiss, Andrew M., 1993. "A signaling theory of unemployment," European Economic Review, Elsevier, vol. 37(1), pages 135-157, January.
  16. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, January.
  17. Gavrel, Frédéric, 2009. "Technical skill bias as a response of firms to unemployment: A matching model with applicant ranking and endogenous skill requirements," Labour Economics, Elsevier, vol. 16(3), pages 304-310, June.
  18. Pissarides, Christopher A, 1994. "Search Unemployment with On-the-Job Search," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 457-75, July.
  19. 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.
  20. Pissarides, C A, 1984. "Efficient Job Rejection," Economic Journal, Royal Economic Society, vol. 94(376a), pages 97-108, Supplemen.
  21. Gavrel, Frédéric, 2011. "On the efficiency of participation with vertically differentiated workers," Economics Letters, Elsevier, vol. 112(1), pages 100-102, July.
  22. Christopher J. Flinn, 2006. "Minimum Wage Effects on Labor Market Outcomes under Search, Matching, and Endogenous Contact Rates," Econometrica, Econometric Society, vol. 74(4), pages 1013-1062, 07.
  23. repec:bla:restud:v:77:y:2010:i:1:p:245-272 is not listed on IDEAS
  24. Albrecht, James W. & Gautier, Pieter A. & Vroman, Susan B., 2003. "Matching with multiple applications," Economics Letters, Elsevier, vol. 78(1), pages 67-70, January.
  25. Gautier, Pieter A, 2002. "Unemployment and Search Externalities in a Model with Heterogeneous Jobs and Workers," Economica, London School of Economics and Political Science, vol. 69(273), pages 21-40, February.
  26. 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.
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Citations

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Cited by:
  1. Frédéric Gavrel, 2014. "Participation, Recruitment Selection, and the Minimum Wage," Working Papers halshs-00948453, HAL.
  2. Frédéric Gavrel, 2011. "Is the Formal Sector too Large or too Small? A Reexamination of Minimum Wages in Developing Countries," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 201108, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.
  3. Gavrel, Frédéric, 2012. "On the inefficiency of matching models of unemployment with heterogeneous workers and jobs when firms rank their applicants," European Economic Review, Elsevier, vol. 56(8), pages 1746-1758.

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