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On-The-Job Search and Sorting

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Author Info

  • 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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Related research

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

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References

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  1. Gadi Barlevy, 2002. "The Sullying Effect of Recessions," Review of Economic Studies, Oxford University Press, vol. 69(1), pages 65-96.
  2. Coen N. Teulings & Pieter A. Gautier, 2004. "The Right Man for the Job," Review of Economic Studies, Oxford University Press, vol. 71(2), pages 553-580.
  3. Pieter A. Gautier & Coen N. Teulings, 2003. "How Large are Search Frictions?," Tinbergen Institute Discussion Papers 03-026/3, Tinbergen Institute, revised 22 Aug 2005.
  4. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
  5. Ramon Marimon & Fabrizio Zilibotti, 1997. "Unemployment vs. mismatch of talents: Reconsidering unemployment benefits," Economics Working Papers 211, Department of Economics and Business, Universitat Pompeu Fabra.
  6. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 661465000000000387, David K. Levine.
  7. Moscarini, Giuseppe, 2001. "Excess Worker Reallocation," Review of Economic Studies, Wiley Blackwell, vol. 68(3), pages 593-612, July.
  8. Moen, Espen R & Rosen, Asa, 2002. "Does Poaching Distort Training?," CEPR Discussion Papers 3468, C.E.P.R. Discussion Papers.
  9. Fabien Postel-Vinay & Jean-Marc Robin, 2002. "Equilibrium Wage Dispersion with Worker and Employer Heterogeneity," Econometrica, Econometric Society, vol. 70(6), pages 2295-2350, November.
  10. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  11. Jovanovic, Boyan, 1984. "Matching, Turnover, and Unemployment," Journal of Political Economy, University of Chicago Press, vol. 92(1), pages 108-22, February.
  12. Kenneth Burdett & Dale T. Mortensen, 1989. "Equilibrium Wage Differentials and Employer Size," Discussion Papers 860, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  13. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
  14. Christopher A. Pissarides, 1992. "Search Unemployment with on-the-job Search," CEP Discussion Papers dp0074, Centre for Economic Performance, LSE.
  15. Gautier, Pieter A, 2002. "Unemployment and Search Externalities in a Model with Heterogeneous Jobs and Workers," Economica, London School of Economics and Political Science, vol. 69(273), pages 21-40, February.
  16. Marimon, R. & Zilibotti, F., 1998. "Unemployment vs. Mismatch of Talents," Papers 661, Stockholm - International Economic Studies.
  17. Shimer, Robert, 2006. "On-the-job search and strategic bargaining," European Economic Review, Elsevier, vol. 50(4), pages 811-830, May.
  18. Mortensen, Dale T & Pissarides, Christopher, 1999. "New Developments in Models of Search in the Labour Market," CEPR Discussion Papers 2053, C.E.P.R. Discussion Papers.
  19. Jovanovic, Boyan, 1979. "Job Matching and the Theory of Turnover," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 972-90, October.
  20. Giuseppe Moscarini, 2005. "Job Matching and the Wage Distribution," Econometrica, Econometric Society, vol. 73(2), pages 481-516, 03.
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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 03-026/3, Tinbergen Institute, revised 22 Aug 2005.
  2. Coen N. Teulings & P.A. Gautier, 2002. "Search and the City," Tinbergen Institute Discussion Papers 02-061/3, Tinbergen Institute.
  3. Coen Teulings & Pieter A. Gautier, 2011. "Sorting and the output loss due to search frictions," 2011 Meeting Papers 169, Society for Economic Dynamics.
  4. 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).
  5. Yale University & Rafael Lopes de Melo, 2008. "Assortative Matching in the Brazilian Labor Market," 2008 Meeting Papers 801, Society for Economic Dynamics.
  6. Gautier, Pieter A & Zenou, Yves, 2008. "Car Ownership and the Labour Market of Ethnic Minorities," CEPR Discussion Papers 7061, C.E.P.R. Discussion Papers.
  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, vol. 13(4), pages 780-799, October.

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