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The Allocation of Labor and Endogenous Search Decisions

Listed author(s):
  • Uren Lawrence

    ()

    (University of Melbourne)

This paper examines the allocation of heterogeneous workers across sectors of an economy in which workers are able to direct their search towards particular firms. We find that search frictions, in addition to causing unemployment, may result in an inefficient allocation of labor. This result arises because of the interaction between the investment decisions of firms and the search decisions of workers. Despite constant returns to scale in both the matching and production functions, this interaction can generate multiple equilibria. The existence of multiple equilibria is shown to depend crucially on the direction of comparative advantage.

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File URL: https://www.degruyter.com/view/j/bejm.2006.6.issue-1/bejm.2006.6.1.1424/bejm.2006.6.1.1424.xml?format=INT
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Article provided by De Gruyter in its journal The B.E. Journal of Macroeconomics.

Volume (Year): 6 (2006)
Issue (Month): 1 (June)
Pages: 1-31

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Handle: RePEc:bpj:bejmac:v:topics.6:y:2006:i:1:n:13
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References listed on IDEAS
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  1. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, July.
  2. Espen R. Moen, 2003. "Do good workers hurt bad workers-or is it the other way around?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(2), pages 779-800, 05.
  3. Diamond, Peter A, 1982. "Aggregate Demand Management in Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 881-894, October.
  4. Hosios, Arthur J, 1990. "Factor Market Search and the Structure of Simple General Equilibrium Models," Journal of Political Economy, University of Chicago Press, vol. 98(2), pages 325-355, April.
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