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Do Good Workers Hurt Bad Workers - or is it the Other Way Around?

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  • Moen, Espen R.

Abstract

In this article, I study the effect of worker heterogeneities on wages and unemployment within the context of a directed search model. A worker's productivity in a given firm depends both on their type and on a worker-firm specific component. Firms advertise unconditional wage offers, and hire the most productive workers that show up. The resulting equilibrium is inefficient, as the wage premium paid to high-type workers is too high, and the number of high-type jobs too low compared to the output-maximizing solution. This reduces the welfare of high-type workers. My findings contrast with the findings in the literature on labour market segmentation, where the argument is that the existence of high-type workers forces down wages to low-type workers and thus reduces the welfare of this group.

Suggested Citation

  • Moen, Espen R., 2002. "Do Good Workers Hurt Bad Workers - or is it the Other Way Around?," CEPR Discussion Papers 3471, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:3471
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    References listed on IDEAS

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    11. Mortensen, Dale T. & Pissarides, Christopher A., 1999. "New developments in models of search in the labor market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 39, pages 2567-2627, Elsevier.
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    Citations

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    Cited by:

    1. Blázquez, Maite & Jansen, Marcel, 2008. "Search, mismatch and unemployment," European Economic Review, Elsevier, vol. 52(3), pages 498-526, April.
    2. Inderst, Roman, 2005. "Competitive search markets with heterogeneous workers," European Economic Review, Elsevier, vol. 49(6), pages 1525-1542, August.
    3. Sattinger, Michael, 2006. "Overlapping labour markets," Labour Economics, Elsevier, vol. 13(2), pages 237-257, April.
    4. Kevin Lang & Michael Manove & William T. Dickens, 2005. "Racial Discrimination in Labor Markets with Posted Wage Offers," American Economic Review, American Economic Association, vol. 95(4), pages 1327-1340, September.
    5. Blumkin, Tomer & Hadar, Yossi & Yashiv, Eran, 2005. "Firm Productivity Dispersion and the Matching Role of UI Policy," IZA Discussion Papers 1733, Institute of Labor Economics (IZA).
    6. Blumkin, Tomer & Hadar, Yossi & Yashiv, Eran, 2009. "The macroeconomic role of unemployment compensation," LSE Research Online Documents on Economics 28517, London School of Economics and Political Science, LSE Library.
    7. Adrian Masters, 2005. "Directed Search without Wage Commitment and the Role of Labor Market Institutions," Discussion Papers 05-02, University at Albany, SUNY, Department of Economics.

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    More about this item

    Keywords

    Directed search; Heterogeneous workers; Wage differentials; Labour market segmentation; Unemployment;
    All these keywords.

    JEL classification:

    • D30 - Microeconomics - - Distribution - - - General
    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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