Since applying for jobs is costly, workers prefer applying where their employment probability is high and, therefore, to jobs attracting fewer higher quality applicants. Since creating vacancies is expensive, firms create more vacancies when job-seeking is high. Our model captures these ideas and accounts for worker heterogeneity by assuming three types of nearly identical workers. These infinitesimal quality differences generate a discrete wage distribution. For some parameter values lower quality workers have discretely lower wages and higher unemployment than better workers. Moreover, increasing the number of the lowest quality workers can make all workers better off.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
4461.
Length: Date of creation: Sep 1993 Date of revision: Handle: RePEc:nbr:nberwo:4461
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Find related papers by JEL classification: J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
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