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Wage competition with heterogeneous workers and firms

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  • HAMILTON, Jonathan
  • THISSE, Jacques-François
  • ZENOU, Yves

Abstract

We study imperfect competition in the labor market when worker skills are continuously distributed within the population and a finite number of firms have different job requirements. The cost of training a worker depends on the difference between this worker's skill and the employer's needs. When firms cannot identify worker training costs in advance, firms pay workers equal wages, but workers absorb training costs. When firms can identify worker types before employment, firms can pay different net wages to workers with different training costs. Voters select the level of general education which is financed by a lump-sum tax. Workers are on average better off when firms can observe workers' skill for a given level of human capital, but the median voter prefers a higher level of general human capital when firms cannot observe worker types.

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File URL: http://dx.doi.org/10.1086/209966
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Bibliographic Info

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers RP with number -1463.

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Handle: RePEc:cor:louvrp:-1463

Note: In : Journal of Labor Economics, 18(3), 453-472, 2000
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  1. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
  2. Rauch James E., 1993. "Productivity Gains from Geographic Concentration of Human Capital: Evidence from the Cities," Journal of Urban Economics, Elsevier, vol. 34(3), pages 380-400, November.
  3. Gottfries, N. & Mccormick, B., 1990. "Discrimination And Open Unemployment In A Segmented Labour Market," Papers 460, Stockholm - International Economic Studies.
  4. Martin J. Osborne & Ariel Rubinstein, 2005. "Bargaining and Markets," Levine's Bibliography 666156000000000515, UCLA Department of Economics.
  5. Stevens, Margaret, 1994. "A Theoretical Model of On-the-Job Training with Imperfect Competition," Oxford Economic Papers, Oxford University Press, vol. 46(4), pages 537-62, October.
  6. Jellal, Mohamed & Thisse, Jacques-François & Zenou, Yves, 1998. "Demand Uncertainty, Mismatch and (Un)Employment: A Microeconomic Approach," CEPR Discussion Papers 1914, C.E.P.R. Discussion Papers.
  7. Chang, Chun & Wang, Yijiang, 1996. "Human Capital Investment under Asymmetric Information: The Pigovian Conjecture Revisited," Journal of Labor Economics, University of Chicago Press, vol. 14(3), pages 505-19, July.
  8. Ransom, Michael R, 1993. "Seniority and Monopsony in the Academic Labor Market," American Economic Review, American Economic Association, vol. 83(1), pages 221-33, March.
  9. Mills, David E. & Smith, William, 1996. "It pays to be different: Endogenous heterogeneity of firms in an oligopoly," International Journal of Industrial Organization, Elsevier, vol. 14(3), pages 317-329, May.
  10. Kim, Sunwoong, 1989. "Labor Specialization and the Extent of the Market," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 692-705, June.
  11. Kats, Amoz, 1995. "More on Hotelling's stability in competition," International Journal of Industrial Organization, Elsevier, vol. 13(1), pages 89-93, March.
  12. Sattinger, Michael, 1993. "Assignment Models of the Distribution of Earnings," Journal of Economic Literature, American Economic Association, vol. 31(2), pages 831-80, June.
  13. Economides, Nicholas, 1989. "Symmetric equilibrium existence and optimality in differentiated product markets," Journal of Economic Theory, Elsevier, vol. 47(1), pages 178-194, February.
  14. Hashimoto, Masanori, 1981. "Firm-Specific Human Capital as a Shared Investment," American Economic Review, American Economic Association, vol. 71(3), pages 475-82, June.
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