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Applications and Interviews: A Structural Analysis of Two-Sided Simultaneous Search

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  • Ronald P. Wolthoff

Abstract

A large part of the literature on frictional matching in the labor market assumes bilateral meetings between workers and firms. This ignores the frictions that arise when workers and firms meet in a multilateral way and cannot coordinate their application and hiring decisions. I analyze the magnitude of these frictions. For this purpose, I present an equilibrium search model of the labor market with an endogenous number of contacts between workers and firms. Workers contact firms by applying to vacancies, whereas firms contact applicants by interviewing them. Sending more applications and interviewing more applicants are both costly activities but increase the probability to match. In equilibrium, contract dispersion arises endogenously and workers spread their applications over the different types of contracts. Estimation of the model on the Employment Opportunities Pilot Projects data set provides values for the fundamental parameters of the model, including the cost of an application, the cost of an interview, and the value of non-market time. These estimates are used to determine the loss in social surplus compared to a Walrasian world. Frictions on the worker and the firm side each cause approximately half of the 4.7% loss. There is a potential role for activating labor market policies, because I show that for the estimated parameter values welfare is improved if unemployed workers increase their search intensity.

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Paper provided by University of Toronto, Department of Economics in its series Working Papers with number tecipa-418.

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Length: 58 pages
Date of creation: 30 Dec 2010
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Handle: RePEc:tor:tecipa:tecipa-418

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Keywords: labor; search; recruitment; frictions; efficiency;

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Cited by:
  1. Manolis Galenianos & Philipp Kircher, 2012. "On the game-theoretic foundations of competitive search equilibrium," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 29707, London School of Economics and Political Science, LSE Library.
  2. Ronald Wolthoff & Ioana Marinescu, 2012. "Wages, Job Queues, and Skills," 2012 Meeting Papers, Society for Economic Dynamics 592, Society for Economic Dynamics.
  3. Lester, Benjamin & Visschers, Ludo & Wolthoff, Ronald, 2014. "Meeting technologies and optimal trading mechanisms in competitive search markets," Working Papers 14-15, Federal Reserve Bank of Philadelphia.
  4. Giovanni L. Violante & Per Krusell & Andreas Hornstein, 2006. "Frictional wage dispersion in search models: a quantitative assessment," Working Paper, Federal Reserve Bank of Richmond 06-07, Federal Reserve Bank of Richmond.
  5. Wolthoff, Ronald P., 2011. "It's About Time: Implications of the Period Length in an Equilibrium Job Search Model," IZA Discussion Papers 6002, Institute for the Study of Labor (IZA).
  6. Ronald Wolthoff, 2013. "It's About Time: Implications of the Period Length in an Equilibrium Search Model," Working Papers, University of Toronto, Department of Economics tecipa-476, University of Toronto, Department of Economics.

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