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Abstract

We present a competing-auction theory of the labor market, where job candidates auction their labor services to employers. An equilibrium matching function emerges which has many of the features commonly assumed, including constant returns to scale in large economies. The auction mechanism also generates equilibrium wage dispersion among homogeneous workers and constrained-efficient entry of vacancies in large economies. In a dynamic version of the model, we generate implied numerical values for equilibrium unemployment and wage dispersion. The theory makes the novel prediction that wage dispersion is a decreasing function of the discount factor and labor market tightness. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1006/redy.1999.0089
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Bibliographic Info

Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 3 (2000)
Issue (Month): 4 (October)
Pages: 619-649

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Handle: RePEc:red:issued:v:3:y:2000:i:4:p:619-649

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Related research

Keywords: matching; wage dispersion; auctions; unemployment; efficiency;

Other versions of this item:

Find related papers by JEL classification:

• E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
• J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
• J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
• J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search
• D44 - Microeconomics - - Market Structure and Pricing - - - Auctions

References

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1. Richard Rogerson, 1997. "Theory Ahead of Language in the Economics of Unemployment," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 73-92, Winter.
2. Kennes, John, 1997. "Efficient search and recruiting: Choosing sides in matching games," Economics Letters, Elsevier, vol. 54(1), pages 59-63, January.
3. Pissarides, C A, 1979. "Job Matchings with State Employment Agencies and Random Search," Economic Journal, Royal Economic Society, vol. 89(356), pages 818-33, December.
4. Peters, Michael & Severinov, Sergei, 1997. "Competition among Sellers Who Offer Auctions Instead of Prices," Journal of Economic Theory, Elsevier, vol. 75(1), pages 141-179, July.
   
   • Michael Peters & Sergei Severinov, 1995. "Competition Among Sellers who offer Auctions Instead of Prices," Working Papers peters-95-02, University of Toronto, Department of Economics.
5. Kultti, Klaus, 1999. "Equivalence of Auctions and Posted Prices," Games and Economic Behavior, Elsevier, vol. 27(1), pages 106-113, April.
   
   • Kultti, K.K., 1997. "Equivalence of Auctions and Posted Prices," Discussion Paper 1997-57, Tilburg University, Center for Economic Research.
6. Dale T. Mortensen, 1982. "The Matching Process as a Noncooperative Bargaining Game," NBER Chapters, in: The Economics of Information and Uncertainty, pages 233-258 National Bureau of Economic Research, Inc.
7. 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.
8. Ian King & R. Preston McAfee & Linda Welling, 1993. "Industrial Blackmail: Dynamic Tax Competition and Public Investment," Canadian Journal of Economics, Canadian Economics Association, vol. 26(3), pages 590-608, August.
9. Diamond, Peter A, 1982. "Wage Determination and Efficiency in Search Equilibrium," Review of Economic Studies, Wiley Blackwell, vol. 49(2), pages 217-27, April.
10. Kenneth Burdett & Shouyong Shi & Randall Wright, 1998. "Pricing with frictions," Working Papers 98-9, Federal Reserve Bank of Philadelphia.
11. Shouyong Shi, 1998. "Frictional Assignment," Working Papers 988, Queen's University, Department of Economics.
    
    • Shouyong Shi, 1998. "Frictional Assignment," Cahiers de recherche CREFE / CREFE Working Papers 74, CREFE, Université du Québec à Montréal.
12. Moen, E.R., 1995. "Competitive Search Equilibrium," Memorandum 37/1995, Oslo University, Department of Economics.
    
    • Moen, Espen R, 1997. "Competitive Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 385-411, April.
13. Lu, Xiaohua & McAfee, R. Preston, 1996. "The Evolutionary Stability of Auctions over Bargaining," Games and Economic Behavior, Elsevier, vol. 15(2), pages 228-254, August.
14. King, Ian & Welling, Linda & Preston McAfee, R., 1992. "Investment decisions under first and second price auctions," Economics Letters, Elsevier, vol. 39(3), pages 289-293, July.
15. Peters Michael, 1994. "Equilibrium Mechanisms in a Decentralized Market," Journal of Economic Theory, Elsevier, vol. 64(2), pages 390-423, December.
16. King, Ian & Welling, Linda, 1995. "Search, unemployment, and growth," Journal of Monetary Economics, Elsevier, vol. 35(3), pages 499-507, June.
17. Bernhardt, Dan & Scoones, David, 1993. "Promotion, Turnover, and Preemptive Wage Offers," American Economic Review, American Economic Association, vol. 83(4), pages 771-91, September.
    
    • Dan Bernhardt & David Scoones, 1991. "Promotion: Turnover and Preemptive Wage Offers," Working Papers 817, Queen's University, Department of Economics.
18. Arthur Sweetman & Peter Kuhn, 1998. "Unemployment Insurance and Quits in Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 31(3), pages 549-572, August.
19. McAfee, R Preston, 1993. "Mechanism Design by Competing Sellers," Econometrica, Econometric Society, vol. 61(6), pages 1281-1312, November.
20. Dale T. Mortensen, 1979. "The Matching Process as a Non-Cooperative/Bargaining Game," Discussion Papers 384, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
21. McAfee, R Preston & McMillan, John, 1987. "Auctions and Bidding," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 699-738, June.
22. Montgomery, James D, 1991. "Equilibrium Wage Dispersion and Interindustry Wage Differentials," The Quarterly Journal of Economics, MIT Press, vol. 106(1), pages 163-79, February.

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