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Efficiency In A Matching Model With Heterogeneous Agents: Too Many Good Or Bad Jobs?

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  • Maite Blázquez

    ()

  • Marcel Jansen

    ()

Abstract

This paper analyzes the efficiency of the equilibrium allocation in a matching model with two types of workers and jobs. The technology is such that high-skill workers can perform all jobs, while low-skill workers can only perform unskilled jobs. In this setup two types equilibria may occur. A “cross-skill matching equilibrium” in which high-skill workers accept all jobs and an “ex-post segmentation equilibrium” in which they accept only skilled jobs. Our first result shows that the equilibrium with ex-post bargaining is never efficient. Second, under Hosios´ (1990) condition we show that low-skill workers are overvalued, while the opposite holds for high-skill workers. In equilibrium, firms therefore create too few unskilled jobs and too many skilled jobs. In addition, high-skill workers may decide to accept unskilled jobs while the efficient allocation features ex-post segmentation. Finally, in an extension we show that efficiency can be restored through taxation and we analyze how workers´ bargaining strength affects unemployment and the degree of skill-mismatch.

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Paper provided by Universidad Carlos III, Departamento de Economía in its series Economics Working Papers with number we035019.

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Date of creation: Oct 2003
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Handle: RePEc:cte:werepe:we035019

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  1. Shimer, R. & Smith, L., 1998. "Assortive Matching and Search," Papers, Michigan - Center for Research on Economic & Social Theory 98-09, Michigan - Center for Research on Economic & Social Theory.
  2. Dale T. Mortensen & Christopher A. Pissarides, 1993. "Job Creation and Job Destruction in the Theory of Unemployment," CEP Discussion Papers dp0110, Centre for Economic Performance, LSE.
  3. Daron Acemoglu & Robert Shimer, 1998. "Holdups and Efficiency with Search Frictions," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 98-14, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. Burdett, Kenneth & Coles, Melvyn G, 1999. "Long-Term Partnership Formation: Marriage and Employment," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 109(456), pages F307-34, June.
  5. Shimer Robert & Smith Lones, 2001. "Matching, Search, and Heterogeneity," The B.E. Journal of Macroeconomics, De Gruyter, De Gruyter, vol. 1(1), pages 1-18, April.
  6. Diamond, Peter A, 1982. "Aggregate Demand Management in Search Equilibrium," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 90(5), pages 881-94, October.
  7. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262161877, December.
  8. James Albrecht & Susan Vroman, 2000. "A Matching Model with Endogenous Skill Requirements," Econometric Society World Congress 2000 Contributed Papers, Econometric Society 0774, Econometric Society.
  9. Dolado, Juan J. & Jansen, Marcel & Jimeno, Juan Francisco, 2003. "On-the-Job Search in a Matching Model with Heterogeneous Jobs and Workers," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4094, C.E.P.R. Discussion Papers.
  10. Mortensen, Dale T, 1982. "Property Rights and Efficiency in Mating, Racing, and Related Games," American Economic Review, American Economic Association, American Economic Association, vol. 72(5), pages 968-79, December.
  11. Juan J. Dolado & Marcel Jansen & Juan F. Jimeno, . "A Matching Model of Crowding-Out and On-the-Job Search (with an application to Spain)," Working Papers 2002-16, FEDEA.
  12. Juan J. Dolado & Marcel Jansen & Juan F. Jimeno, . "On-the-Job Search in a Matching Model with Heterogenous Jobs and Workers," Working Papers 2003-21, FEDEA.
  13. Dolado, Juan J. & Jansen, Marcel & Jimeno, Juan Francisco, 2002. "A Matching Model of Crowding-Out and On-the-Job Search (with an Application to Spain)," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3466, C.E.P.R. Discussion Papers.
  14. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 57(2), pages 279-98, April.
  15. Moen, E.R., 1995. "Competitive Search Equilibrium," Memorandum, Oslo University, Department of Economics 37/1995, Oslo University, Department of Economics.
  16. Sattinger, Michael, 1995. "Search and the Efficient Assignment of Workers to Jobs," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(2), pages 283-302, May.
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Cited by:
  1. Blázquez, Maite & Jansen, Marcel, 2008. "Search, mismatch and unemployment," European Economic Review, Elsevier, Elsevier, vol. 52(3), pages 498-526, April.
  2. Anna Batyra & Henri R. Sneessens, 2006. "Selective Reductions in Labour Taxation: Labour Market Adjustments and Macroeconomic Performance," 2006 Meeting Papers, Society for Economic Dynamics 142, Society for Economic Dynamics.
  3. Olivier Pierrard & Henri Sneessens, 2004. "Biased Technological Shocks, Wage Rigidities and Low-Skilled Unemployment," DNB Working Papers, Netherlands Central Bank, Research Department 020, Netherlands Central Bank, Research Department.

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