Heterogeneity, Selection and Labor Market Disparities
AbstractWe study the incentives to acquire skill in a model where heterogeneous firms and workers interact in a labor market characterized by matching frictions and costly screening. When effort in acquiring skill raises both the mean and the variance of the resulting ability distribution, multiple equilibria may arise. In the high-effort equilibrium, heterogeneity in ability is sufficiently large to induce firms to select the best workers, thereby confirming the belief that effort is important for finding good jobs. In the low-effort equilibrium, ability is not sufficiently dispersed to justify screening, thereby confirming the belief that effort is not so important. The model has implications for wage inequality, the distribution of firm characteristics, sorting patterns between firms and workers, and unemployment rates that can help explaining observed cross-country variation in socio-economic and labor market outcomes.
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Bibliographic InfoPaper provided by Barcelona Graduate School of Economics in its series Working Papers with number 734.
Date of creation: Oct 2013
Date of revision:
wage inequality; firm heterogeneity; unemployment; effort; beliefs; sorting; selection; multiple equilibria;
Other versions of this item:
- Alessandra Bonfiglioli & Gino Gancia, 2013. "Heterogeneity, selection and labor market disparities," Economics Working Papers 1402, Department of Economics and Business, Universitat Pompeu Fabra.
- E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
- J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
- J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-12-06 (All new papers)
- NEP-BEC-2013-12-06 (Business Economics)
- NEP-CTA-2013-12-06 (Contract Theory & Applications)
- NEP-HRM-2013-12-06 (Human Capital & Human Resource Management)
- NEP-LAB-2013-12-06 (Labour Economics)
- NEP-MAC-2013-12-06 (Macroeconomics)
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