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Bidding for Labor

Author

Listed:
  • Benoit Julien

    (Victoria University of Wellington)

  • John Kennes

    (Pace University)

  • Ian King

    (University of Victoria and University of Auckland)

Abstract

We present a competing-auction theory of the labor market, where job candidates auction their labor services to employers. An equilibrium matching function emerges which has many of the features commonly assumed, including constant returns to scale in large economies. The auction mechanism also generates equilibrium wage dispersion among homogeneous workers and constrained-efficient entry of vacancies in large economies. In a dynamic version of the model, we generate implied numerical values for equilibrium unemployment and wage dispersion. The theory makes the novel prediction that wage dispersion is a decreasing function of the discount factor and labor market tightness. (Copyright: Elsevier)

Suggested Citation

  • Benoit Julien & John Kennes & Ian King, 2000. "Bidding for Labor," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(4), pages 619-649, October.
  • Handle: RePEc:red:issued:v:3:y:2000:i:4:p:619-649
    DOI: 10.1006/redy.1999.0089
    as

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    References listed on IDEAS

    as
    1. Richard Rogerson, 1997. "Theory Ahead of Language in the Economics of Unemployment," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 73-92, Winter.
    2. Kennes, John, 1997. "Efficient search and recruiting: Choosing sides in matching games," Economics Letters, Elsevier, vol. 54(1), pages 59-63, January.
    3. Pissarides, C A, 1979. "Job Matchings with State Employment Agencies and Random Search," Economic Journal, Royal Economic Society, vol. 89(356), pages 818-833, December.
    4. Peters, Michael & Severinov, Sergei, 1997. "Competition among Sellers Who Offer Auctions Instead of Prices," Journal of Economic Theory, Elsevier, vol. 75(1), pages 141-179, July.
    5. Kultti, Klaus, 1999. "Equivalence of Auctions and Posted Prices," Games and Economic Behavior, Elsevier, vol. 27(1), pages 106-113, April.
    6. Dale T. Mortensen, 1982. "The Matching Process as a Noncooperative Bargaining Game," NBER Chapters,in: The Economics of Information and Uncertainty, pages 233-258 National Bureau of Economic Research, Inc.
    7. Ian King & R. Preston McAfee & Linda Welling, 1993. "Industrial Blackmail: Dynamic Tax Competition and Public Investment," Canadian Journal of Economics, Canadian Economics Association, vol. 26(3), pages 590-608, August.
    8. Kenneth Burdett & Shouyong Shi & Randall Wright, 1998. "Pricing with frictions," Working Papers 98-9, Federal Reserve Bank of Philadelphia.
    9. Shouyong Shi, 1998. "Frictional Assignment," Cahiers de recherche CREFE / CREFE Working Papers 74, CREFE, Université du Québec à Montréal.
    10. Moen, Espen R, 1997. "Competitive Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 385-411, April.
    11. Lu, Xiaohua & McAfee, R. Preston, 1996. "The Evolutionary Stability of Auctions over Bargaining," Games and Economic Behavior, Elsevier, vol. 15(2), pages 228-254, August.
    12. King, Ian & Welling, Linda & Preston McAfee, R., 1992. "Investment decisions under first and second price auctions," Economics Letters, Elsevier, vol. 39(3), pages 289-293, July.
    13. Peters Michael, 1994. "Equilibrium Mechanisms in a Decentralized Market," Journal of Economic Theory, Elsevier, vol. 64(2), pages 390-423, December.
    14. King, Ian & Welling, Linda, 1995. "Search, unemployment, and growth," Journal of Monetary Economics, Elsevier, vol. 35(3), pages 499-507, June.
    15. Bernhardt, Dan & Scoones, David, 1993. "Promotion, Turnover, and Preemptive Wage Offers," American Economic Review, American Economic Association, vol. 83(4), pages 771-791, September.
    16. Arthur Sweetman & Peter Kuhn, 1998. "Unemployment Insurance and Quits in Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 31(3), pages 549-572, August.
    17. McAfee, R Preston, 1993. "Mechanism Design by Competing Sellers," Econometrica, Econometric Society, vol. 61(6), pages 1281-1312, November.
    18. James D. Montgomery, 1991. "Equilibrium Wage Dispersion and Interindustry Wage Differentials," The Quarterly Journal of Economics, Oxford University Press, vol. 106(1), pages 163-179.
    19. McAfee, R Preston & McMillan, John, 1987. "Auctions and Bidding," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 699-738, June.
    20. Arthur J. Hosios, 1990. "On The Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Oxford University Press, vol. 57(2), pages 279-298.
    21. Peter A. Diamond, 1982. "Wage Determination and Efficiency in Search Equilibrium," Review of Economic Studies, Oxford University Press, vol. 49(2), pages 217-227.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    matching; wage dispersion; auctions; unemployment; efficiency;

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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