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Catching Hipo's: Screening, Wages and Unemployment

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  • Maarten C.W. Janssen

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    (Erasmus University Rotterdam)

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    Abstract

    In this paper, I study the wage a firm sets to attract high abilityworkers (hipo's) in situationsof unemployment. I show that the higher unemployment, the larger afirm's incentives to sorthigh and low ability workers. Moreover, workers will signal their(high) ability in situationsof (high) unemployment only if a job offers a high enough wage. Themain result, therefore,says that a firm sets higher wages, the higher unemployment. As themodel is applicable tothe upper segment of the labour market, the result is in line withthe empirical fact thatincome inequality increases when more people are unemployed.

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    Bibliographic Info

    Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 00-028/1.

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    Date of creation: 12 Apr 2000
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    Handle: RePEc:dgr:uvatin:20000028

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    Keywords: Monopsony Power; Labor Market; Screening;

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    1. Noldeke, Georg & van Damme, Eric, 1990. "Signalling in a Dynamic Labour Market," Review of Economic Studies, Wiley Blackwell, vol. 57(1), pages 1-23, January.
    2. Robert Gibbons & Lawrence Katz, 1989. "Layoffs and Lemons," NBER Working Papers 2968, National Bureau of Economic Research, Inc.
    3. Edward M. Gramlich, 1974. "The Distributional Effects of Higher Unemployment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 5(2), pages 293-342.
    4. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 841-64, October.
    5. Blinder, Alan S & Esaki, Howard Y, 1978. "Macroeconomic Activity and Income Distribution in the Postwar United States," The Review of Economics and Statistics, MIT Press, vol. 60(4), pages 604-09, November.
    6. Andrew Weiss, 1995. "Human Capital vs. Signalling Explanations of Wages," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 133-154, Fall.
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