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Catching Hipo's: Screening, Wages and Unemployment

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Author Info
Maarten C.W. Janssen () (Erasmus University Rotterdam)
Abstract

In this paper, I study the wage a firm sets to attract high ability workers (hipo's) in situations of unemployment. I show that the higher unemployment, the larger a firm's incentives to sort high and low ability workers. Moreover, workers will signal their (high) ability in situations of (high) unemployment only if a job offers a high enough wage. The main result, therefore, says that a firm sets higher wages, the higher unemployment. As the model is applicable to the upper segment of the labour market, the result is in line with the empirical fact that income inequality increases when more people are unemployed.

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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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Related research
Keywords: Monopsony Power; Labor Market; Screening;

Find related papers by JEL classification:
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets

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  1. Edward P. Lazear & Sherwin Rosen, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," NBER Working Papers 0401, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Gibbons, Robert & Katz, Lawrence F, 1991. "Layoffs and Lemons," Journal of Labor Economics, University of Chicago Press, vol. 9(4), pages 351-80, October. [Downloadable!] (restricted)
    Other versions:
  3. Noldeke, Georg & van Damme, Eric, 1990. "Signalling in a Dynamic Labour Market," Review of Economic Studies, Blackwell Publishing, vol. 57(1), pages 1-23, January. [Downloadable!] (restricted)
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  4. 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. [Downloadable!] (restricted)
  5. Edward M. Gramlich, 1974. "The Distributional Effects of Higher Unemployment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 5(1974-2), pages 293-342. [Downloadable!]
  6. Weiss, Andrew, 1995. "Human Capital vs. Signalling Explanations of Wages," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 133-54, Fall. [Downloadable!] (restricted)
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