In this paper we study the allocation of workers over high and low productivity firms in a labor market with coordination frictions. Specifically, we consider a search model where workers can apply to high and or low productivity firms. Firms that compete for the same candidate can increase their wage offers as often as they like. We show that if workers apply to two jobs, there is a unique symmetric equilibrium where workers mix between sending both applications to the high and sending both to the low productivity sector. But, efficiency requires that they apply to both sectors because a higher matching rate in the high-productivity sector can then be realized with fewer applications (and consequently fewer coordination frictions) if workers always accept the offer of the most productive firm. However, in the market the worker's payoff is determined by how much the firm with the second highest productivity is willing to bid. This is what prevents them from applying to both sectors. For many configurations, the equilibrium outcomes are the same under directed and random search so our results are not driven by random search. We discuss the effects of increasing the number of applications and show that our results can easily be generalized to N-firms.
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Volume (Year): 16 (2009) Issue (Month): 3 (June) Pages: 311-319 Download reference. The following formats are available: HTML
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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.:
Hector Chade & Lones Smith, .
"Simultaneous Search,"
Working Papers
2168591, Department of Economics, W. P. Carey School of Business, Arizona State University.
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Benoit Julien & John Kennes & Ian King, 2000.
"Bidding for Labor,"
Review of Economic Dynamics,
Elsevier for the Society for Economic Dynamics, vol. 3(4), pages 619-649, October.
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Julien, B. & Kennes, J. & King, I., 1998.
"Bidding for Labour,"
Discussion Papers
dp98-03, Department of Economics, Simon Fraser University.
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