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Efficiency and Labor Market Dynamics in a Model of Labor Selection

  • Sanjay K. Chugh

    (Boston College)

  • Christian Merkl

    (Friedrich-Alexander-University Erlangen-Nuremberg)

We characterize efficient allocations and cyclical fluctuations in a labor selection model. Potential new hires are heterogenous in the cross-section in their degree of training costs. In a calibrated version of the model that identifies costly selection with micro-level data on training costs, efficient fluctuations feature highly volatile unemployment and hiring rates, in line with empirical evidence. We show analytically in a partial equilibrium version of the model that volatility arises from selection effects, rather than general equilibrium effects.

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Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 846.

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Date of creation: 09 Apr 2013
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Publication status: forthcoming, International Economic Review
Handle: RePEc:boc:bocoec:846
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