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Market Integration, Matching and Wages

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Author Info
Melanie Cao () (Queen's University)
Shouyong Shi () (Queen's University and Center for Research on Economic Fluctuations and Employment, UQAM)

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Abstract

When it is costly for agents to find a match, integrating small markets into a larger one increases the matching difficulty. We examine such dependence of the number of matches on the market size by explicitely modelling firms' attempt to attract workers by posting wages. It is shown that integration reduces the relative market power of agents on the much shorter side of the market. Thus, if there are at least as many workers as jobs, integrating markets increases wages; if there are much fewer workers than jobs, integrating markets reduces wages. This is the case even though integration does not change the worker/job ratio in the market. Regardless of the wage response, market integration reduces social welfare when everyone is weighted equally and when other benefits of integration such as improved match qualities are absent. We characterize the upper bound on the welfare loss from increased matching difficulty and show that the marginal welfare loss shrinks as the market becomes increasingly integrated.

Lorsqu'il est coûteux pour les agents économiques de trouver un partenaire d'échange, le fait d'intégrer de petits marchés dans un plus grand augmente les difficultés d'appariement. Nous examinons dans quelle mesure les nombre d'appariements dépend de la taille du marché en modélisant explicitement les tentatives de la firme d'attirer des travailleurs en affichant des salaires. Nous montrons que l'intégration réduit le pouvoir de marché des agents sur le côté le moins saturé du marché. Ainsi, s'il y a au moins autant de travailleurs que de postes, l'intégration des marchés augmente les salaires; s'il y en a beaucoup moins, l'intégration réduit les salaires. Ceci est le cas même si le ratio travailleurs/postes reste inchangé. Indépendamment de la réaction des salaires, l'intégration des marchés réduit le bien-être social lorsque chacun est pondéré uniformément et lorsque d'autres bienfaits de l'intégration comme la meilleure qualité des appariements sont absents. Nous caractérisons la limite supérieure des pertes de bien-être résultant de difficultés plus élevées d'appariement et montrons que la perte marginale de bien-être décroît lorsque le marché s'intègre de plus en plus.

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Publisher Info
Paper provided by CREFE, Université du Québec à Montréal in its series Cahiers de recherche CREFE / CREFE Working Papers with number 79.

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Length: 28 pages
Date of creation: Apr 1999
Date of revision:
Handle: RePEc:cre:crefwp:79

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Related research
Keywords: market integration; wage posting; endogenous matches;

Find related papers by JEL classification:
J60 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - General
D40 - Microeconomics - - Market Structure and Pricing - - - General
E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Benoit Julien & John Kennes & Ian King, 2000. "Bidding for Labor," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(4), pages 619-649, October. [Downloadable!] (restricted)
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