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Directed Search without Price Directions

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  • Julien, Benoit
  • Kennes, John
  • King, Ian

Abstract

This paper presents a very simple directed search model of the labour market in which no wage announcements are made. Wages, instead, are determined by an ex post bidding mechanism: an auction without a reserve price. We characterize the properties of the equilibrium of the model, and examine its implied Beveridge curve. We show that this wage determination mechanism induces efficient job entry in equilibrium. A dynamic version of the model is calibrated to the US labour market. The model can account for observed vacancy rates, given parameters that are chosen to match the average wages and the natural rate of unemployment. In the limit, as the time between offer rounds in the model approaches zero, the equilibrium approaches the Walrasian competitive equilibrium.

Suggested Citation

  • Julien, Benoit & Kennes, John & King, Ian, 2003. "Directed Search without Price Directions," Working Papers 174, Department of Economics, The University of Auckland.
  • Handle: RePEc:auc:wpaper:174
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    File URL: http://hdl.handle.net/2292/174
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