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Unraveling and Inefficient Matching

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  • Akhil Vohra

Abstract

Labor markets unravel when workers and firms match inefficiently early under limited information. I argue that a significant determinant of unraveling is the presence of a secondary market, where firms can poach workers, and its transparency: how well firms can ascertain workers' value once they are employed by competitors. While early hiring reduces the probability of hiring a high-type worker, it prevents rivals from learning about the worker, making poaching difficult. When secondary markets are very transparent, unraveling disappears. However, the matching remains inefficient due to the incentives of low-tier firms to communicate that they have not hired top-quality workers.

Suggested Citation

  • Akhil Vohra, 2025. "Unraveling and Inefficient Matching," American Economic Journal: Microeconomics, American Economic Association, vol. 17(3), pages 415-453, August.
    • Handle: RePEc:aea:aejmic:v:17:y:2025:i:3:p:415-53
    DOI: 10.1257/mic.20230233
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    More about this item

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J44 - Labor and Demographic Economics - - Particular Labor Markets - - - Professional Labor Markets and Occupations
    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions

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