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Efficiency in a Matching Model with Heterogeneous Agents: Too Many Good or Bad Jobs?

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  • Blázquez Cuesta, Maite

    ()
    (Universidad Autónoma de Madrid)

  • Jansen, Marcel

    ()
    (Universidad Autónoma de Madrid)

Abstract

This paper analyses the efficiency of the equilibrium allocation in a matching model with two types of workers and jobs. The basic assumption is that high-skill workers can perform both skilled and unskilled jobs, while low-skill workers can only perform unskilled jobs. Our first result shows that the equilibrium with ex-post bargaining is never efficient. Second, under Hosios’ (1990) condition we show that high-skill workers are under-valued in equilibrium, while the opposite holds for low-skill workers. Firms therefore tend to create too few unskilled jobs, resulting in a suboptimally high unemployment rate for low-skill workers. We show that these results generalize to environments with more types of agents and different production technologies. Finally, in an extension we derive a tax scheme that restores efficiency and we show how workers’ bargaining strength affects unemployment and skill-mismatch.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 968.

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Length: 48 pages
Date of creation: Dec 2003
Date of revision:
Handle: RePEc:iza:izadps:dp968

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Keywords: heterogeneity; ex post bargaining; matching; efficiency;

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References

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  1. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 279-98, April.
  2. Juan J. Dolado & Marcel Jansen & Juan F. Jimeno, . "A Matching Model of Crowding-Out and On-the-Job Search (with an application to Spain)," Working Papers 2002-16, FEDEA.
  3. James Albrecht & Susan Vroman, 2002. "A Matching Model with Endogenous Skill Requirements," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(1), pages 283-305, February.
  4. Juan J. Dolado & Marcel Jansen & Juan F. Jimeno, . "On-the-Job Search in a Matching Model with Heterogenous Jobs and Workers," Working Papers 2003-21, FEDEA.
  5. Burdett, Kenneth & Coles, Melvyn G, 1999. "Long-Term Partnership Formation: Marriage and Employment," Economic Journal, Royal Economic Society, vol. 109(456), pages F307-34, June.
  6. P. Diamond, 1980. "Aggregate Demand Management in Search Equilibrium," Working papers 268, Massachusetts Institute of Technology (MIT), Department of Economics.
  7. Shimer Robert & Smith Lones, 2001. "Matching, Search, and Heterogeneity," The B.E. Journal of Macroeconomics, De Gruyter, vol. 1(1), pages 1-18, April.
  8. Shimer, R. & Smith, L., 1998. "Assortive Matching and Search," Papers 98-09, Michigan - Center for Research on Economic & Social Theory.
  9. Acemoglu, Daron & Shimer, Robert, 1999. "Holdups and Efficiency with Search Frictions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 827-49, November.
  10. Moen, Espen R, 1997. "Competitive Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 385-411, April.
  11. Sattinger, Michael, 1995. "Search and the Efficient Assignment of Workers to Jobs," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(2), pages 283-302, May.
  12. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, December.
  13. Dale T. Mortensen & Christopher A. Pissarides, 1993. "Job Creation and Job Destruction in the Theory of Unemployment," CEP Discussion Papers dp0110, Centre for Economic Performance, LSE.
  14. Mortensen, Dale T, 1982. "Property Rights and Efficiency in Mating, Racing, and Related Games," American Economic Review, American Economic Association, vol. 72(5), pages 968-79, December.
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Cited by:
  1. Batyra, Anna & Sneessens, Henri R., 2010. "Selective reductions in labor taxation: Labor market adjustments and macroeconomic performance," Journal of Policy Modeling, Elsevier, vol. 32(4), pages 531-543, July.
  2. Maite Blázquez & Marcel Jansen, 2005. "Search, Mismatch and Unemployment," Labor and Demography 0510012, EconWPA.
  3. Olivier Pierrard & Henri Sneessens, 2004. "Biased Technological Shocks, Wage Rigidities and Low-Skilled Unemployment," DNB Working Papers 020, Netherlands Central Bank, Research Department.

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