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WP 37 - Search, mismatch and unemployment

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Author Info

  • Maite Blázquez Cuesta

    ()
    (Dpto de Análisis Económico: Teoría Económica e Historia Económica , Universidad Autónoma de Madrid)

  • jansen, M.

Abstract

This paper explores the efficiency of the equilibrium allocation in a matching model with heterogeneous workers and jobs. In the basic setup the labor force is divided in two groups. The high-skill workers are qualified for all jobs, while low-skill workers can perform unskilled jobs but not the more attractive skilled jobs. We demonstrate that the equilibrium with random search and ex post bargaining is never efficient. Under Hosios’ condition the average wage is correct, but bargaining compresses the wage distribution relative to workers’ shadow values. The wage compression distorts the relative profits of jobs making it too attractive to create skilled jobs. Furthermore, the low skill premium may prevent that the two types of workers efficiently sort in different jobs. In the first case we show that the market offers too few job opportunities for low-skill workers. On the contrary, when mismatch is socially wasteful, we find that low-skill workers experience shorter unemployment spells than in the efficient allocation. Finally, we show that our results generalize to environments with many types of agents and less stringent restrictions on the production technology.

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Bibliographic Info

Paper provided by AIAS, Amsterdam Institute for Advanced Labour Studies in its series AIAS Working Papers with number wp37.

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Date of creation: Jan 2005
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Handle: RePEc:aia:aiaswp:wp37

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  1. Maite Blázquez & Marcel Jansen, 2003. "Efficiency In A Matching Model With Heterogeneous Agents: Too Many Good Or Bad Jobs?," Economics Working Papers we035019, Universidad Carlos III, Departamento de Economía.
  2. Coen N. Teulings & Pieter A. Gautier, 2000. "The Right Man for the Job," Tinbergen Institute Discussion Papers 00-038/3, Tinbergen Institute.
  3. 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.
  4. Juan J. Dolado & Marcel Jansen & Juan F. Jimeno, . "On-the-Job Search in a Matching Model with Heterogenous Jobs and Workers," Working Papers 2003-21, FEDEA.
  5. 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.
  6. 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.
  7. Kevin Lang & William T. Dickens, 1992. "Labor Market Segmentation, Wage Dispersion and Unemployment," NBER Working Papers 4073, National Bureau of Economic Research, Inc.
  8. Danthine, Samuel, 2005. "Two-Sided Search, Heterogeneous Skills and Labor Market Performance," IZA Discussion Papers 1572, Institute for the Study of Labor (IZA).
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