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Coordination Frictions and Job Heterogeneity: A Discrete Time Analysis

  • John Kennes

    ()

    (School of Economics and Management, Aarhus University, Denmark)

  • Daniel le Maire

    (Department of Economics, University of Copenhagen, Denmark)

This paper develops and extends a dynamic, discrete time, job to worker matching model in which jobs are heterogeneous in equilibrium. The key assumptions of this economic environment are (i) matching is directed and (ii) coordination frictions lead to heterogeneous local labor markets. We de- rive a number of new theoretical results, which are essential for the empirical application of this type of model to matched employer-employee microdata. First, we o¤er a robust equilibrium concept in which there is a continu- ous dispersion of job productivities and wages. Second, we show that our model can be readily solved with continuous exogenous worker heterogene- ity, where high type workers (high outside options and productivity) earn higher wages in high type jobs and are hired at least as frequently to the better job types as low type workers (low outside options and productivity). Third, we demonstrate that the tractability of this framework is enhanced by analyzing and proving the equivalence of "seller auctions" and "buyer posting". We also prove a related result concerning the equivalence of buyer posting and seller posting when buyers di¤er continuously. Finally, we show that all of these results preserve the essential tractability of the baseline model with aggregate shocks. Therefore, we o¤er a parsimonious, general equilibrium framework in which to study the process by which the contin- uous dispersion of wages and productivities varies over the business cycle for a large population of workers with continuous dispersion of unobserved worker types.

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Paper provided by School of Economics and Management, University of Aarhus in its series Economics Working Papers with number 2010-05.

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Length: 38
Date of creation: 12 Apr 2010
Date of revision:
Handle: RePEc:aah:aarhec:2010-05
Contact details of provider: Web page: http://www.econ.au.dk/afn/

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  1. Guido Menzio & Shouyong Shi, 2009. "Block Recursive Equilibria for Stochastic Models of Search on the Job," NBER Working Papers 14907, National Bureau of Economic Research, Inc.
  2. Abowd, J.M. & Kramarz, F. & Margolis, D.N., 1995. "High-Wage Workers and High-Wage Firms," Cahiers de recherche 9503, Universite de Montreal, Departement de sciences economiques.
  3. Moen, Espen R, 1997. "Competitive Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 385-411, April.
  4. Kenneth Burdett & Shouyong Shi & Randall Wright, 2001. "Pricing and Matching with Frictions," Journal of Political Economy, University of Chicago Press, vol. 109(5), pages 1060-1085, October.
  5. Shimer, R. & Smith, L., 1997. "Assortative Matching and Search," Working papers 97-2a, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. Albrecht, James W & Axell, Bo, 1983. "An Equilibrium Model of Search Unemployment," Working Paper Series 99, Research Institute of Industrial Economics.
  7. Satyajit Chatterjee & Dean Corbae & Makoto Nakajima & José-Víctor Ríos-Rull, 2007. "A Quantitative Theory of Unsecured Consumer Credit with Risk of Default," Econometrica, Econometric Society, vol. 75(6), pages 1525-1589, November.
  8. Shouyong Shi, 2006. "Directed Search for Equilibrium Wage-Tenure Contracts," Working Papers tecipa-260, University of Toronto, Department of Economics.
  9. Shi, Shouyong, 2006. "Wage differentials, discrimination and efficiency," European Economic Review, Elsevier, vol. 50(4), pages 849-875, May.
  10. Bent Jesper Christensen & Rasmus Lentz & Dale T. Mortensen & George R. Neumann & Axel Werwatz, 2005. "On-the-Job Search and the Wage Distribution," Journal of Labor Economics, University of Chicago Press, vol. 23(1), pages 31-58, January.
  11. Guido Menzio & Shouyong Shi, 2008. "On-the-Job Search and Business Cycles," Working Papers tecipa-308, University of Toronto, Department of Economics.
  12. Julien, B. & Kennes, J. & King, I., 1998. "Bidding for Labour," Discussion Papers dp98-03, Department of Economics, Simon Fraser University.
  13. Julien, BenoI^t & Kennes, John & King, Ian, 2008. "Bidding for money," Journal of Economic Theory, Elsevier, vol. 142(1), pages 196-217, September.
  14. Kultti, Klaus, 1999. "Equivalence of Auctions and Posted Prices," Games and Economic Behavior, Elsevier, vol. 27(1), pages 106-113, April.
  15. Benoit Julien & John Kennes & Ian King, 2001. "Residual Wage Disparity and Coordination Unemployment," CAM Working Papers 2004-20, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics, revised Nov 2004.
  16. John Knowles & John Kennes, 2011. "Marriage, Fertility and Step-Families: An Equilibrium Analysis," 2011 Meeting Papers 227, Society for Economic Dynamics.
  17. Guido Menzio & Shouyong Shi, 2010. "Directed Search on the Job, Heterogeneity, and Aggregate Fluctuations," Working Papers tecipa-390, University of Toronto, Department of Economics.
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