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Ranking, Unemployment Duration, and Wages

  • Blanchard, Olivier Jean
  • Diamond, Peter A

This paper examines the effects of the composition of unemployment on wage determination. It explores the implication of one central assumption: firms hire the worker who has been unemployed for the least amount of time. By embodying this assumption in a model of the labor market with job creation/destruction and matching, the joint behavior of unemployment, the distribution of unemployment durations, and wages are characterized. The implication that the reemployment prospects of employed workers, were they to become unemployed, are better than those of the currently unemployed appears to have been an important feature of European unemployment experience in the 1980s. Copyright 1994 by The Review of Economic Studies Limited.

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Article provided by Wiley Blackwell in its journal Review of Economic Studies.

Volume (Year): 61 (1994)
Issue (Month): 3 (July)
Pages: 417-34

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Handle: RePEc:bla:restud:v:61:y:1994:i:3:p:417-34
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  1. Calvo, Guillermo, 1979. "Quasi-Walrasian Theories of Unemployment," American Economic Review, American Economic Association, vol. 69(2), pages 102-07, May.
  2. 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.
  3. Diamond, Peter A, 1982. "Wage Determination and Efficiency in Search Equilibrium," Review of Economic Studies, Wiley Blackwell, vol. 49(2), pages 217-27, April.
  4. Avner Shaked & John Sutton, 1984. "The Semi-Walrasian Economy," STICERD - Theoretical Economics Paper Series 98, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  5. Holzer, Harry J & Katz, Lawrence F & Krueger, Alan B, 1991. "Job Queues and Wages," The Quarterly Journal of Economics, MIT Press, vol. 106(3), pages 739-68, August.
  6. Olivier Jean Blanchard & Peter A. Diamond, 1989. "The Aggregate Matching Function," NBER Working Papers 3175, National Bureau of Economic Research, Inc.
  7. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
  8. Barron, John M & Bishop, John, 1985. "Extensive Search, Intensive Search, and Hiring Costs: New Evidence on Employer Hiring Activity," Economic Inquiry, Western Economic Association International, vol. 23(3), pages 363-82, July.
  9. Butters, Gerard R, 1977. "Equilibrium Distributions of Sales and Advertising Prices," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 465-91, October.
  10. Olivier Jean Blanchard, 1989. "Two Tools for Analyzing Unemployment," NBER Working Papers 3168, National Bureau of Economic Research, Inc.
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