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On-The-Job Search and Sorting

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  • Gautier, Pieter

    ()
    (VU University Amsterdam)

  • Teulings, Coen

    ()
    (University of Cambridge)

  • van Vuuren, Aico

    ()
    (VU University Amsterdam)

Abstract

We characterize the equilibrium of a search model with a continuum of job and worker types, wage bargaining, free entry of vacancies and on-the-job search. The decentralized economy with monopsonistic wage setting yields too many vacancies and hence too low unemployment compared to first best. This is due to a business-stealing externality. Raising workers' bargaining power resolves this inefficiency. Unemployment benefits are a second best alternative to this policy. We establish simple relations between the losses in production due to search frictions and wage differentials on the one hand and unemployment on the other hand. Both can be used for empirical testing.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1687.

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Length: 44 pages
Date of creation: Jul 2005
Date of revision:
Publication status: published as "On-the-job search, mismatch and efficiency" in: Review of Economic Studies, 2010, 77 (1), 245-272
Handle: RePEc:iza:izadps:dp1687

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Keywords: optimal UI benefits; assignment; efficiency; on-the-job search; search frictions;

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References

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  1. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, American Economic Association, vol. 74(3), pages 433-44, June.
  2. Marimon, Ramon & Zilibotti, Fabrizio, 1998. "Unemployment vs. Mismatch of Talents: Reconsidering Unemployment Benefits," Seminar Papers, Stockholm University, Institute for International Economic Studies 661, Stockholm University, Institute for International Economic Studies.
  3. Shimer, Robert, 2006. "On-the-job search and strategic bargaining," European Economic Review, Elsevier, Elsevier, vol. 50(4), pages 811-830, May.
  4. Espen R. Moen & Asa Rosén, 2004. "Does Poaching Distort Training?," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 71(4), pages 1143-1162, October.
  5. Fabien Postel-Vinay & Jean-Marc Robin, 2002. "Equilibrium Wage Dispersion with Worker and Employer Heterogeneity," Econometrica, Econometric Society, Econometric Society, vol. 70(6), pages 2295-2350, November.
  6. Gadi Barlevy, 2002. "The Sullying Effect of Recessions," Review of Economic Studies, Oxford University Press, vol. 69(1), pages 65-96.
  7. Christopher A. Pissarides, 1992. "Search Unemployment with on-the-job Search," CEP Discussion Papers, Centre for Economic Performance, LSE dp0074, Centre for Economic Performance, LSE.
  8. Gautier, Pieter A & Teulings, Coen N, 2003. "How Large are Search Frictions?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3861, C.E.P.R. Discussion Papers.
  9. Marimon, R. & Zilibotti, F., 1998. "Unemployment vs. Mismatch of Talents," Papers, Stockholm - International Economic Studies 661, Stockholm - International Economic Studies.
  10. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, Econometric Society, vol. 50(1), pages 97-109, January.
  11. Coen N. Teulings & Pieter A. Gautier, 2004. "The Right Man for the Job," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 71(2), pages 553-580, 04.
  12. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
  13. Jovanovic, Boyan, 1984. "Matching, Turnover, and Unemployment," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 92(1), pages 108-22, February.
  14. Mortensen, Dale T & Pissarides, Christopher, 1999. "New Developments in Models of Search in the Labour Market," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2053, C.E.P.R. Discussion Papers.
  15. Kenneth Burdett & Dale T. Mortensen, 1989. "Equilibrium Wage Differentials and Employer Size," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 860, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  16. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS), University of Warwick, Department of Economics 64, University of Warwick, Department of Economics.
  17. Gautier, Pieter A, 2002. "Unemployment and Search Externalities in a Model with Heterogeneous Jobs and Workers," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 69(273), pages 21-40, February.
  18. Jovanovic, Boyan, 1979. "Job Matching and the Theory of Turnover," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 87(5), pages 972-90, October.
  19. Giuseppe Moscarini, 2005. "Job Matching and the Wage Distribution," Econometrica, Econometric Society, Econometric Society, vol. 73(2), pages 481-516, 03.
  20. Moscarini, Giuseppe, 2001. "Excess Worker Reallocation," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 68(3), pages 593-612, July.
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Citations

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Cited by:
  1. Pieter A. Gautier & Coen N. Teulings, 2003. "How Large are Search Frictions?," Tinbergen Institute Discussion Papers, Tinbergen Institute 03-026/3, Tinbergen Institute, revised 22 Aug 2005.
  2. Gautier, Pieter A & Zenou, Yves, 2008. "Car Ownership and the Labour Market of Ethnic Minorities," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7061, C.E.P.R. Discussion Papers.
  3. Barlevy, Gadi & Nagaraja, H. N., 2006. "Identification of Search Models with Initial Condition Problems," IZA Discussion Papers 2061, Institute for the Study of Labor (IZA).
  4. Gautier, Pieter A & Teulings, Coen N, 2011. "Sorting and the output loss due to search frictions," CEPR Discussion Papers, C.E.P.R. Discussion Papers 8257, C.E.P.R. Discussion Papers.
  5. Yale University & Rafael Lopes de Melo, 2008. "Assortative Matching in the Brazilian Labor Market," 2008 Meeting Papers 801, Society for Economic Dynamics.
  6. Coen N. Teulings & P.A. Gautier, 2002. "Search and the City," Tinbergen Institute Discussion Papers, Tinbergen Institute 02-061/3, Tinbergen Institute.
  7. Gadi Barlevy & H. N. Nagaraja, 2010. "Estimating Mobility Rates in Search Models with Initial Condition Problems," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(4), pages 780-799, October.

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