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On-the-Job Search and Sorting

  • Pieter A. Gautier
  • Coenraad N. Teulings
  • Aico van Vuuren

We characterize the equilibrium of a search model with a continuum of job and worker types, wage bargaining, free entry of vacancies and on-the-job search. The decentralized economy with monopsonistic wage setting yields too many vacancies and hence too low unemployment compared to first best. This is due to a business-stealing externality. Raising workers’ bargaining power resolves this inefficiency. Unemployment benefits are a second best alternative to this policy. We establish simple relations between the losses in production due to search frictions and wage differentials on the one hand and unemployment on the other hand. Both can be used for empirical testing.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1537.

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Date of creation: 2005
Date of revision:
Handle: RePEc:ces:ceswps:_1537
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  1. Mortensen, Dale T & Pissarides, Christopher, 1999. "New Developments in Models of Search in the Labour Market," CEPR Discussion Papers 2053, C.E.P.R. Discussion Papers.
  2. Barlevy, Gadi, 2002. "The Sullying Effect of Recessions," Review of Economic Studies, Wiley Blackwell, vol. 69(1), pages 65-96, January.
  3. Coen N. Teulings & Pieter A. Gautier, 2004. "The Right Man for the Job," Review of Economic Studies, Oxford University Press, vol. 71(2), pages 553-580.
  4. repec:inr:wpaper:155908 is not listed on IDEAS
  5. Moen, Espen R. & Rosén, Åsa, 2002. "Does poaching distort training?," Working Paper Series 4/2002, Swedish Institute for Social Research.
  6. Ramon Marimon & Fabrizio Zilibotti, 1997. "Unemployment vs. mismatch of talents: Reconsidering unemployment benefits," Economics Working Papers 211, Department of Economics and Business, Universitat Pompeu Fabra.
  7. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
  8. repec:oup:restud:v:61:y:1994:i:3:p:457-75 is not listed on IDEAS
  9. Gautier, Pieter A & Teulings, Coen N, 2005. "How Large are Search Frictions?," CEPR Discussion Papers 5229, C.E.P.R. Discussion Papers.
  10. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
  11. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 252, David K. Levine.
  12. Jovanovic, Boyan, 1979. "Job Matching and the Theory of Turnover," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 972-90, October.
  13. repec:oup:qjecon:v:107:y:1992:i:2:p:439-79 is not listed on IDEAS
  14. Postel-Vinay, Fabien & Robin, Jean-Marc, 2002. "Equilibrium Wage Dispersion with Worker and Employer Heterogeneity," CEPR Discussion Papers 3548, C.E.P.R. Discussion Papers.
  15. Marimon, R. & Zilibotti, F., 1998. "Unemployment vs. Mismatch of Talents," Papers 661, Stockholm - International Economic Studies.
  16. Giuseppe Moscarini, 2005. "Job Matching and the Wage Distribution," Econometrica, Econometric Society, vol. 73(2), pages 481-516, 03.
  17. Shimer, Robert, 2006. "On-the-job search and strategic bargaining," European Economic Review, Elsevier, vol. 50(4), pages 811-830, May.
  18. repec:oup:restud:v:68:y:2001:i:3:p:593-612 is not listed on IDEAS
  19. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
  20. Jovanovic, Boyan, 1984. "Matching, Turnover, and Unemployment," Journal of Political Economy, University of Chicago Press, vol. 92(1), pages 108-22, February.
  21. Gautier, Pieter A, 2002. "Unemployment and Search Externalities in a Model with Heterogeneous Jobs and Workers," Economica, London School of Economics and Political Science, vol. 69(273), pages 21-40, February.
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