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The market for job placement : a model of head-hunters

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This paper deals with the consequences of the existence of private employment agencies on the labor market. Using a matching framework, we study the conditions of existence of private employment agencies and the consequences of competition on the market for job placement. We show that the private employment agencies enter in the labour market only if they are much more efficient than the private agency. Moreover, the level of the unemployment benefits is a disincentive to manage workers for the private agency. Because of a high fallback position for the worker, it is costly for the private employment agency to manage a worker having some low probabilities to exit from unemployment. If these conditions are satisfied, the existence of private employment agencies improves the labor market through shorter unemployment spells and a lower unemployment rate. Moreover, an improvement in the matching process is an incentive for the firms to post vacancies at the private agencies. Nevertheless, the workers managed by the private agencies receive some lower wages than the other workers because of the payment by the firm for recruiting a worker. Finally, we show that private employment agencies have a natural disincentive to manage unskilled workers. But, the introduction of a subsidy to match an unskilled worker with a vacancy seems to be a sufficient incentive to make the private employment agencies managing unskilled workers.

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Paper provided by Université Panthéon-Sorbonne (Paris 1) in its series Cahiers de la Maison des Sciences Economiques with number v06027.

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Length: 41 pages
Date of creation: Jul 2005
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Handle: RePEc:mse:wpsorb:v06027

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Keywords: Unemployment; matching model; public employment agencies; private employment agencies.;

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  1. Diamond, Peter A, 1981. "Mobility Costs, Frictional Unemployment, and Efficiency," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 798-812, August.
  2. Yavas, Abdullah, 1994. "Middlemen in Bilateral Search Markets," Journal of Labor Economics, University of Chicago Press, vol. 12(3), pages 406-29, July.
  3. Christopher A. Pissarides & Barbara Petrongolo, 2001. "Looking into the Black Box: A Survey of the Matching Function," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 390-431, June.
  4. Neugart, Michael & Storrie, Donald, 2002. "Temporary work agencies and equilibrium unemployment," Working Papers in Economics 83, University of Gothenburg, Department of Economics.
  5. Harry J. Holzer, 1986. "Search Method Use by Unemployed Youth," NBER Working Papers 1859, National Bureau of Economic Research, Inc.
  6. Dale Mortensen, 1984. "Job Search and Labor Market Analysis," Discussion Papers 594, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  7. Ours, J.C. van & Lindeboom, M. & Renes, G., 1994. "Matching Employers and Workers: an Empirical Analysis on the Effectiveness of Search," Open Access publications from Tilburg University urn:nbn:nl:ui:12-142172, Tilburg University.
  8. Blau, David M & Robins, Philip K, 1990. "Job Search Outcomes for the Employed and Unemployed," Journal of Political Economy, University of Chicago Press, vol. 98(3), pages 637-55, June.
  9. Pissarides, C A, 1979. "Job Matchings with State Employment Agencies and Random Search," Economic Journal, Royal Economic Society, vol. 89(356), pages 818-33, December.
  10. René Böheim & Mark P Taylor, 2002. "Job search methods, intensity and success in Britain in the 1990s," Economics working papers 2002-06, Department of Economics, Johannes Kepler University Linz, Austria.
  11. Osberg, L., 1989. "Fishing In Different Pools: Job Search Strategies And Job-Finding Success In Canada In The Early 1980s," Department of Economics at Dalhousie University working papers archive 89-03, Dalhousie, Department of Economics.
  12. John T. Addison & Pedro Portugal, 1998. "Job Search Methods and Outcomes," Working Papers w199808, Banco de Portugal, Economics and Research Department.
  13. Dolado, Juan J. & Felgueroso, Florentino & Jimeno, Juan F., 2000. "Youth labour markets in Spain: Education, training, and crowding-out," European Economic Review, Elsevier, vol. 44(4-6), pages 943-956, May.
  14. Acemoglu, Daron, 2001. "Good Jobs versus Bad Jobs," Journal of Labor Economics, University of Chicago Press, vol. 19(1), pages 1-21, January.
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