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The Right Man for the Job

  • Coen N. Teulings
  • Pieter A. Gautier

This paper describes a search model with a continuum of worker and job types, free entry and transferable utility. We apply a second-order Taylor expansion to characterize the equilibrium, derive the "cost of search" and show that it is decreasing in the substitutability of worker types. This cost of search is then decomposed into three components: unemployment, vacancy costs and mismatch. Our contact technology rules out congestion effects between different worker types and therefore exhibits increasing returns to scale. One third of those increasing returns in contacts are shown to be absorbed by firms and workers being more choosy. The resulting equilibrium is not efficient. Unemployment benefits can reduce the loss by serving as a search subsidy. Numerical simulations of the model show that our Taylor expansions are quite accurate. Copyright The Review of Economic Studies Limited, 2004.

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

Volume (Year): 71 (2004)
Issue (Month): 2 (04)
Pages: 553-580

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Handle: RePEc:bla:restud:v:71:y:2004:i:2:p:553-580
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  1. Shimer, R. & Smith, L., 1998. "Assortive Matching and Search," Papers 98-09, Michigan - Center for Research on Economic & Social Theory.
  2. Sattinger, Michael, 1993. "Assignment Models of the Distribution of Earnings," Journal of Economic Literature, American Economic Association, vol. 31(2), pages 831-80, June.
  3. Petrongolo, Barbara & Pissarides, Christopher, 2000. "Looking Into The Black Box: A Survey Of The Matching Function," CEPR Discussion Papers 2409, C.E.P.R. Discussion Papers.
  4. Burdett, Kenneth & Coles, Melvyn G, 1999. "Long-Term Partnership Formation: Marriage and Employment," Economic Journal, Royal Economic Society, vol. 109(456), pages F307-34, June.
  5. Robert Shimer, 1999. "The Impact of Young Workers on the Aggregate Labor Market," NBER Working Papers 7306, National Bureau of Economic Research, Inc.
  6. Diamond, Peter A, 1982. "Aggregate Demand Management in Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 881-94, October.
  7. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 279-98, April.
  8. Mortensen, Dale T. & Pissarides, Christopher A., 1999. "New developments in models of search in the labor market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 39, pages 2567-2627 Elsevier.
  9. Dale T. Mortensen & Christopher A. Pissarides, 1993. "Job Creation and Job Destruction in the Theory of Unemployment," CEP Discussion Papers dp0110, Centre for Economic Performance, LSE.
  10. Marimon, Ramon & Zilibotti, Fabrizio, 1999. "Unemployment vs. Mismatch of Talents: Reconsidering Unemployment Benefits," Economic Journal, Royal Economic Society, vol. 109(455), pages 266-91, April.
  11. Christopher A. Pissarides, 1992. "Search Unemployment with on-the-job Search," CEP Discussion Papers dp0074, Centre for Economic Performance, LSE.
  12. Meyer, Bruce D, 1990. "Unemployment Insurance and Unemployment Spells," Econometrica, Econometric Society, vol. 58(4), pages 757-82, July.
  13. P. Diamond, 1980. "Mobility Costs, Frictional Unemployment and Efficiency," Working papers 257, Massachusetts Institute of Technology (MIT), Department of Economics.
  14. Burdett, Kenneth & Coles, Melvyn G & van Ours, Jan C, 1994. "Temporal Aggregation Bias in Stock-Flow Models," CEPR Discussion Papers 967, C.E.P.R. Discussion Papers.
  15. Krueger, Alan B & Summers, Lawrence H, 1988. "Efficiency Wages and the Inter-industry Wage Structure," Econometrica, Econometric Society, vol. 56(2), pages 259-93, March.
  16. Burdett, Kenneth, 1979. "Unemployment Insurance Payments as a Search Subsidy: A Theoretical Analysis," Economic Inquiry, Western Economic Association International, vol. 17(3), pages 333-43, July.
  17. Burdett, Ken & Coles, Melvyn G, 1997. "Marriage and Class," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 141-68, February.
  18. Berman, Eli, 1997. "Help Wanted, Job Needed: Estimates of a Matching Function from Employment Service Data," Journal of Labor Economics, University of Chicago Press, vol. 15(1), pages S251-92, January.
  19. Diamond, Peter A, 1982. "Wage Determination and Efficiency in Search Equilibrium," Review of Economic Studies, Wiley Blackwell, vol. 49(2), pages 217-27, April.
  20. Sattinger, Michael, 1995. "Search and the Efficient Assignment of Workers to Jobs," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(2), pages 283-302, May.
  21. Lones Smith, 1995. "Cross-Sectional Dynamics in a Two-Sided Matching Model," Working papers 95-14, Massachusetts Institute of Technology (MIT), Department of Economics.
  22. repec:ner:tilbur:urn:nbn:nl:ui:12-153334 is not listed on IDEAS
  23. Kenneth Burdett & Dale T. Mortensen, 1989. "Equilibrium Wage Differentials and Employer Size," Discussion Papers 860, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  24. Sattinger, Michael, 1975. "Comparative Advantage and the Distributions of Earnings and Abilities," Econometrica, Econometric Society, vol. 43(3), pages 455-68, May.
  25. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
  26. Teulings, Coen N, 1995. "The Wage Distribution in a Model of the Assignment of Skills to Jobs," Journal of Political Economy, University of Chicago Press, vol. 103(2), pages 280-315, April.
  27. repec:dgr:uvatin:19980095 is not listed on IDEAS
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