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Wage competition with heterogeneous workers and firms

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  • HAMILTON, Jonathan
  • THISSE, Jacques-François
  • ZENOU, Yves

Abstract

We study imperfect competition in the labor market when worker skills are continuously distributed within the population and a finite number of firms have different job requirements. The cost of training a worker depends on the difference between this worker's skill and the employer's needs. When firms cannot identify worker training costs in advance, firms pay workers equal wages, but workers absorb training costs. When firms can identify worker types before employment, firms can pay different net wages to workers with different training costs. Voters select the level of general education which is financed by a lump-sum tax. Workers are on average better off when firms can observe workers' skill for a given level of human capital, but the median voter prefers a higher level of general human capital when firms cannot observe worker types.
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Suggested Citation

  • HAMILTON, Jonathan & THISSE, Jacques-François & ZENOU, Yves, 2000. "Wage competition with heterogeneous workers and firms," LIDAM Reprints CORE 1463, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvrp:1463
    DOI: 10.1086/209966
    Note: In : Journal of Labor Economics, 18(3), 453-472, 2000
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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