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Endogenous Inequality in Integrated Labor Markets with Two-Sided Search

  • Larry Samuelson
  • George J. Mailath
  • Avner Shaked

We consider a market with "red" and "green" workers, where labels are payoff irrelevant. Workers may acquire skills. Skilled workers search for vacancies, while firms search for workers. A unique symmetric equilibrium exists in which color is irrelevant. There are also asymmetric equilibria in which firms search only for green workers, more green than red workers acquire skills, skilled green workers receive higher wages, and the unemployment rate is higher among skilled red workers. Discrimination between ex ante identical individuals arises in equilibrium, and yet firms have perfect information about their workers, and strictly prefer to hire minority workers.

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 90 (2000)
Issue (Month): 1 (March)
Pages: 46-72

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Handle: RePEc:aea:aecrev:v:90:y:2000:i:1:p:46-72
Note: DOI: 10.1257/aer.90.1.46
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  1. Broersma, L. & van Ours, J.C., 1998. "Job Searchers, Job Matches and the Elasticity of Matching," Discussion Paper 1998-72, Tilburg University, Center for Economic Research.
  2. Cornell, Bradford & Welch, Ivo, 1996. "Culture, Information, and Screening Discrimination," Journal of Political Economy, University of Chicago Press, vol. 104(3), pages 542-71, June.
  3. Coles, Melvyn G & Smith, Eric, 1994. "Cross-Section Estimation of the Matching Function: Evidence from England and Wales," CEPR Discussion Papers 966, C.E.P.R. Discussion Papers.
  4. van Ours, J.C. & Broersma, L., 1999. "Job searchers, job matches and the elasticity of matching," Other publications TiSEM c199f354-b73c-49b6-84f6-e, Tilburg University, School of Economics and Management.
  5. P. Diamond, 1980. "Aggregate Demand Management in Search Equilibrium," Working papers 268, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. Coate, Stephen & Loury, Glenn C, 1993. "Will Affirmative-Action Policies Eliminate Negative Stereotypes?," American Economic Review, American Economic Association, vol. 83(5), pages 1220-40, December.
  7. Oliver Jean Blanchard & Peter Diamond, 1989. "The Beveridge Curve," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 20(1), pages 1-76.
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