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

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Abstract

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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Bibliographic Info

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
Date of revision:
Handle: RePEc:mse:wpsorb:v06027

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

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  1. Lindeboom, Maarten & van Ours, Jan C & Renes, Gusta, 1994. "Matching Employers and Workers: An Empirical Analysis on the Effectiveness of Search," Oxford Economic Papers, Oxford University Press, vol. 46(1), pages 45-67, January.
  2. 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.
  3. Acemoglu, Daron, 2001. "Good Jobs versus Bad Jobs," Journal of Labor Economics, University of Chicago Press, vol. 19(1), pages 1-21, January.
  4. Harry J. Holzer, 1986. "Search Method Use by Unemployed Youth," NBER Working Papers 1859, National Bureau of Economic Research, Inc.
  5. Neugart, Michael & Storrie, Donald, 2002. "Temporary work agencies and equilibrium unemployment," Working Papers in Economics 83, University of Gothenburg, Department of Economics.
  6. Barbara Petrongolo & Christopher A. Pissarides, 2000. "Looking Into the Black Box: A Survey of the Matching Function," CEP Discussion Papers dp0470, Centre for Economic Performance, LSE.
  7. John T. Addison & Pedro Portugal, 2002. "Job search methods and outcomes," Oxford Economic Papers, Oxford University Press, vol. 54(3), pages 505-533, July.
  8. P. Diamond, 1980. "Mobility Costs, Frictional Unemployment and Efficiency," Working papers 257, Massachusetts Institute of Technology (MIT), Department of Economics.
  9. Dolado, Juan José & Felgueroso, Florentino & Jimeno, Juan F., . "Youth Labour Markets in Spain: Education, Training and Crowding-Out," Open Access publications from Universidad Carlos III de Madrid info:hdl:10016/3269, Universidad Carlos III de Madrid.
  10. Mortensen, Dale T., 1987. "Job search and labor market analysis," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 2, chapter 15, pages 849-919 Elsevier.
  11. 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.
  12. Yavas, Abdullah, 1994. "Middlemen in Bilateral Search Markets," Journal of Labor Economics, University of Chicago Press, vol. 12(3), pages 406-29, July.
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