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On-the-Job Search and Sorting

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  • Pieter A. Gautier
  • Coenraad N. Teulings
  • Aico van Vuuren

Abstract

We characterize the equilibrium of a search model with a continuum of job and worker types, wage bargaining, free entry of vacancies and on-the-job search. The decentralized economy with monopsonistic wage setting yields too many vacancies and hence too low unemployment compared to first best. This is due to a business-stealing externality. Raising workers’ bargaining power resolves this inefficiency. Unemployment benefits are a second best alternative to this policy. We establish simple relations between the losses in production due to search frictions and wage differentials on the one hand and unemployment on the other hand. Both can be used for empirical testing.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2005/wp-cesifo-2005-09/cesifo1_wp1537.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1537.

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Date of creation: 2005
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Handle: RePEc:ces:ceswps:_1537

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References

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  1. Postel-Vinay, Fabien & Robin, Jean-Marc, 2002. "Equilibrium Wage Dispersion with Worker and Employer Heterogeneity," CEPR Discussion Papers 3548, C.E.P.R. Discussion Papers.
  2. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
  3. Barlevy, Gadi, 2002. "The Sullying Effect of Recessions," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 69(1), pages 65-96, January.
  4. Marimon, R. & Zilibotti, F., 1998. "Unemployment vs. Mismatch of Talents," Papers, Stockholm - International Economic Studies 661, Stockholm - International Economic Studies.
  5. Moscarini, Giuseppe, 2001. "Excess Worker Reallocation," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 68(3), pages 593-612, July.
  6. Gautier, Pieter A & Teulings, Coen N, 2003. "How Large are Search Frictions?," CEPR Discussion Papers 3861, C.E.P.R. Discussion Papers.
  7. Marimon, Ramon & Zilibotti, Fabrizio, 1999. "Unemployment vs. Mismatch of Talents: Reconsidering Unemployment Benefits," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 109(455), pages 266-91, April.
  8. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 252, David K. Levine.
  9. Moen, Espen R. & Rosén, Åsa, 2002. "Does poaching distort training?," Working Paper Series 4/2002, Swedish Institute for Social Research.
  10. Mortensen, Dale T & Pissarides, Christopher, 1999. "New Developments in Models of Search in the Labour Market," CEPR Discussion Papers 2053, C.E.P.R. Discussion Papers.
  11. Jovanovic, Boyan, 1979. "Job Matching and the Theory of Turnover," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 87(5), pages 972-90, October.
  12. Coen N. Teulings & Pieter A. Gautier, 2004. "The Right Man for the Job," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 71(2), pages 553-580, 04.
  13. Shimer, Robert, 2006. "On-the-job search and strategic bargaining," European Economic Review, Elsevier, vol. 50(4), pages 811-830, May.
  14. Kenneth Burdett & Dale T. Mortensen, 1989. "Equilibrium Wage Differentials and Employer Size," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 860, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  15. Giuseppe Moscarini, 2005. "Job Matching and the Wage Distribution," Econometrica, Econometric Society, Econometric Society, vol. 73(2), pages 481-516, 03.
  16. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  17. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
  18. Pissarides, Christopher A, 1994. "Search Unemployment with On-the-Job Search," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 61(3), pages 457-75, July.
  19. Jovanovic, Boyan, 1984. "Matching, Turnover, and Unemployment," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 92(1), pages 108-22, February.
  20. Gautier, Pieter A, 2002. "Unemployment and Search Externalities in a Model with Heterogeneous Jobs and Workers," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 69(273), pages 21-40, February.
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Cited by:
  1. Barlevy, Gadi & Nagaraja, H. N., 2006. "Identification of Search Models with Initial Condition Problems," IZA Discussion Papers 2061, Institute for the Study of Labor (IZA).
  2. 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.
  3. Gautier, P.A. & Teulings, C.N., 2009. "Search and the city," Regional Science and Urban Economics, Elsevier, vol. 39(3), pages 251-265, May.
  4. Gautier, Pieter A & Zenou, Yves, 2008. "Car Ownership and the Labour Market of Ethnic Minorities," CEPR Discussion Papers 7061, C.E.P.R. Discussion Papers.
  5. Coen N. Teulings & Pieter Gautier, 2012. "Sorting and the output loss due to search frictions," 2012 Meeting Papers, Society for Economic Dynamics 292, Society for Economic Dynamics.
  6. Gadi Barlevy & H. N. Nagaraja, 2010. "Estimating Mobility Rates in Search Models with Initial Condition Problems," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(4), pages 780-799, October.
  7. Yale University & Rafael Lopes de Melo, 2008. "Assortative Matching in the Brazilian Labor Market," 2008 Meeting Papers 801, Society for Economic Dynamics.

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