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Partially Directed Search in the Labor Market

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  • Liangjie Wu

    (EIEF)

Abstract

I study the labor market implications of limited information inherent in the job search process. Workers pay a cost to direct job search that is proportional to the divergence between the chosen search strategy and a benchmark random search strategy. With this cost, workers apply to every job with a positive probability, but apply to high-payoff jobs with higher probabilities. In a wage posting model with partially directed search, employers have monopsony power: firms extract a markdown due to the cost of directing search. Efficiency of the market equilibrium depends on whether the markdowns are equally distributed across firms. Inefficiency arises when search cost is intermediate, which has new implications on policy remedies to monopsony.

Suggested Citation

  • Liangjie Wu, 2021. "Partially Directed Search in the Labor Market," EIEF Working Papers Series 2117, Einaudi Institute for Economics and Finance (EIEF), revised Dec 2021.
    • Handle: RePEc:eie:wpaper:2117
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    Cited by:

    1. Dami'an Vergara, 2022. "Minimum Wages and Optimal Redistribution," Papers 2202.00839, arXiv.org, revised Dec 2022.
    2. Rabinovich, Stanislav & Wolthoff, Ronald, 2022. "Misallocation inefficiency in partially directed search," Journal of Economic Theory, Elsevier, vol. 206(C).

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