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The Right Man for the Job

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  • Coen N. Teulings
  • Pieter A. Gautier

Abstract

This paper describes a search model with a continuum of worker and job types, free entry and transferable utility. We apply a second-order Taylor expansion to characterize the equilibrium, derive the "cost of search" and show that it is decreasing in the substitutability of worker types. This cost of search is then decomposed into three components: unemployment, vacancy costs and mismatch. Our contact technology rules out congestion effects between different worker types and therefore exhibits increasing returns to scale. One third of those increasing returns in contacts are shown to be absorbed by firms and workers being more choosy. The resulting equilibrium is not efficient. Unemployment benefits can reduce the loss by serving as a search subsidy. Numerical simulations of the model show that our Taylor expansions are quite accurate. Copyright 2004, Wiley-Blackwell.

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Bibliographic Info

Article provided by Oxford University Press in its journal The Review of Economic Studies.

Volume (Year): 71 (2004)
Issue (Month): 2 ()
Pages: 553-580

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Handle: RePEc:oup:restud:v:71:y:2004:i:2:p:553-580

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  1. 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, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(2), pages 283-302, May.
  2. Coen N. Teulings & José A.C. Vieira, 1998. "Urban versus Rural Return to Human Capital in Portugal, A Cook-Book Recipe for Applying Assignment Models," Tinbergen Institute Discussion Papers, Tinbergen Institute 98-095/3, Tinbergen Institute, revised 20 Sep 2002.
  3. Barbara Petrongolo & Christopher Pissarides, 2000. "Looking into the black box: a survey of the matching function," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 2122, London School of Economics and Political Science, LSE Library.
  4. Marimon, Ramon & Zilibotti, Fabrizio, 1998. "Unemployment vs. Mismatch of Talents: Reconsidering Unemployment Benefits," Seminar Papers, Stockholm University, Institute for International Economic Studies 661, Stockholm University, Institute for International Economic Studies.
  5. 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.
  6. Mortensen, Dale T & Pissarides, Christopher, 1999. "New Developments in Models of Search in the Labour Market," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2053, C.E.P.R. Discussion Papers.
  7. Dale T. Mortensen & Christopher A. Pissarides, 1993. "Job Creation and Job Destruction in the Theory of Unemployment," CEP Discussion Papers, Centre for Economic Performance, LSE dp0110, Centre for Economic Performance, LSE.
  8. Krueger, Alan B & Summers, Lawrence H, 1988. "Efficiency Wages and the Inter-industry Wage Structure," Econometrica, Econometric Society, Econometric Society, vol. 56(2), pages 259-93, March.
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  10. Sattinger, Michael, 1975. "Comparative Advantage and the Distributions of Earnings and Abilities," Econometrica, Econometric Society, Econometric Society, vol. 43(3), pages 455-68, May.
  11. Berman, Eli, 1997. "Help Wanted, Job Needed: Estimates of a Matching Function from Employment Service Data," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 15(1), pages S251-92, January.
  12. Diamond, Peter A, 1982. "Wage Determination and Efficiency in Search Equilibrium," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 49(2), pages 217-27, April.
  13. Pieter A. Gautier & Coen N. Teulings, 2006. "How Large are Search Frictions?," Journal of the European Economic Association, MIT Press, MIT Press, vol. 4(6), pages 1193-1225, December.
  14. Bruce D. Meyer, 1988. "Unemployment Insurance And Unemployment Spells," NBER Working Papers 2546, National Bureau of Economic Research, Inc.
  15. Coen N. Teulings & P.A. Gautier, 2002. "Search and the City," Tinbergen Institute Discussion Papers, Tinbergen Institute 02-061/3, Tinbergen Institute.
  16. P. Diamond, 1980. "Aggregate Demand Management in Search Equilibrium," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 268, Massachusetts Institute of Technology (MIT), Department of Economics.
  17. Yashiv, E., 1999. "The Determinants of Equilibrium Unemployment," Papers, Tel Aviv 36-99, Tel Aviv.
  18. Robert Shimer, 2001. "The Impact Of Young Workers On The Aggregate Labor Market," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 116(3), pages 969-1007, August.
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  26. Burdett, Ken & Coles, Melvyn G, 1997. "Marriage and Class," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 112(1), pages 141-68, February.
  27. Burdett, Kenneth & Coles, Melvyn G & van Ours, Jan C, 1994. "Temporal Aggregation Bias in Stock-Flow Models," CEPR Discussion Papers, C.E.P.R. Discussion Papers 967, C.E.P.R. Discussion Papers.
  28. Shimer Robert & Smith Lones, 2001. "Matching, Search, and Heterogeneity," The B.E. Journal of Macroeconomics, De Gruyter, De Gruyter, vol. 1(1), pages 1-18, April.
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