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Do Good Workers Hurt Bad Workers - or is it the Other Way Around?

  • Moen, Espen R

In this article, I study the effect of worker heterogeneities on wages and unemployment within the context of a directed search model. A worker's productivity in a given firm depends both on their type and on a worker-firm specific component. Firms advertise unconditional wage offers, and hire the most productive workers that show up. The resulting equilibrium is inefficient, as the wage premium paid to high-type workers is too high, and the number of high-type jobs too low compared to the output-maximizing solution. This reduces the welfare of high-type workers. My findings contrast with the findings in the literature on labour market segmentation, where the argument is that the existence of high-type workers forces down wages to low-type workers and thus reduces the welfare of this group.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3471.

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Date of creation: Jul 2002
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Handle: RePEc:cpr:ceprdp:3471
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  1. Montgomery, James D, 1991. "Equilibrium Wage Dispersion and Interindustry Wage Differentials," The Quarterly Journal of Economics, MIT Press, vol. 106(1), pages 163-79, February.
  2. Peters, Michael, 1997. "On the Equivalence of Walrasian and Non-Walrasian Equilibria in Contract Markets: The Case of Complete Contracts," Review of Economic Studies, Wiley Blackwell, vol. 64(2), pages 241-64, April.
  3. Levy, Frank & Murnane, Richard J, 1992. "U.S. Earnings Levels and Earnings Inequality: A Review of Recent Trends and Proposed Explanations," Journal of Economic Literature, American Economic Association, vol. 30(3), pages 1333-81, September.
  4. Inderst, Roman & Müller, Holger M., 1999. "Competitive Search Markets with Adverse Selection," Sonderforschungsbereich 504 Publications 99-52, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
  5. Kevin Lang & William T. Dickens, 1992. "Labor Market Segmentation, Wage Dispersion and Unemployment," NBER Working Papers 4073, National Bureau of Economic Research, Inc.
  6. Kevin Lang & Michael Manove & William T. Dickens, 2005. "Racial Discrimination in Labor Markets with Posted Wage Offers," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-145, Boston University - Department of Economics.
  7. Jeremy I. Bulow & Lawrence H. Summers, 1985. "A Theory of Dual Labor Markets with Application to Industrial Policy, Discrimination and Keynesian Unemployment," NBER Working Papers 1666, National Bureau of Economic Research, Inc.
  8. 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.
  9. Moen, E.R., 1995. "Competitive Search Equilibrium," Memorandum 37/1995, Oslo University, Department of Economics.
  10. Juhn, Chinhui & Murphy, Kevin M & Pierce, Brooks, 1993. "Wage Inequality and the Rise in Returns to Skill," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 410-42, June.
  11. Kevin Lang & William T. Dickens, 1993. "Bilateral Search as an Explanation for Labor Market Segmentation and Other Anomalies," NBER Working Papers 4461, National Bureau of Economic Research, Inc.
  12. Lang, Kevin & Kahn, Shulamit, 1998. "The effect of minimum-wage laws on the distribution of employment: theory and evidence," Journal of Public Economics, Elsevier, vol. 69(1), pages 67-82, July.
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