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Frictional Assignment

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Abstract

This paper examines the time-consuming process of matching the two sides of a market each having diverse characteristics. This is cast in a labor market setting where workers of different skills need be matched with different machine qualities to produce output. I characterize the efficient allocation and then show that it can be decentralized by a competitive framework. A prominent feature of the frictional assignment is that each skill level is associated with a market tightness in addition to a machine quality. The differential market tightness as an additional allocative device implies that the assignment is not always positively assortative, i.e., high quality machines are not necessarily assigned to high skills even though machine qualities and skills are complementary in production. The market mechanism that decentralizes the efficient assignment has the feature that firms post wages to attract workers in addition to choosing machine qualities. A steady state is established and numerical exercices are used to show that the differential market tightness for different skills is also quantitatively important for the wage function and wage distribution. Ce papier étudie le processus coûteux en temps d'appariement des deux côtés du marché, chacun ayant des caractéristiques diverses. Ceci est placé dans un marché du travail où les travailleurs ont des qualifications qui doivent être appariées avec différents qualités de machine pour la production. Je caractérise l'allocation efficace puis montre qu'elle peut être décentralisée dans un cadre concurrentiel. Un trait saillant de l'assignation frictionnelle est que chaque niveau de qualification est associé à un degré d'étroitesse du marché en plus d'une qualité de machine. L'étroitesse du marché différenciée en tant qu'instrument supplémentaire d'allocation implique que l'assignation n'est pas toujours positivement assortative, par exemple que des machines de haute qualité ne sont pas nécessairement assignées à des travailleurs hautement qualifiés malgré que qualité et qualification soient complémentaires dans la production. Le mécanisme de marché qui décentralise l'assignation efficace a la particularité que la firme affiche des salaires qui attirent des travailleurs en plus de choisir les qualités de machine. Un état stationnaire est établi et des exercices numériques sont utilisés pour montrer que le différentiel d'étroitesse du marché pour les différentes qualifications est également quantitativement important pour la fonction de salaire et la distribution des salaires.

Suggested Citation

  • Shouyong Shi, 1998. "Frictional Assignment," Cahiers de recherche CREFE / CREFE Working Papers 74, CREFE, Université du Québec à Montréal.
  • Handle: RePEc:cre:crefwp:74
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    References listed on IDEAS

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    1. Acemoglu, Daron & Shimer, Robert, 1999. "Holdups and Efficiency with Search Frictions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 827-849, November.
    2. Roth,Alvin E. & Sotomayor,Marilda A. Oliveira, 1992. "Two-Sided Matching," Cambridge Books, Cambridge University Press, number 9780521437882, March.
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    5. Benoit Julien & John Kennes & Ian King, 2000. "Bidding for Labor," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(4), pages 619-649, October.
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    Cited by:

    1. Joel Shapiro, 2002. "Wage inequality in a frictional labor market," Economics Working Papers 614, Department of Economics and Business, Universitat Pompeu Fabra.
    2. Philipp Kircher & Jan Eeckhout, 2008. "Prices as Optimal Competitive Sales Mechanisms," 2008 Meeting Papers 504, Society for Economic Dynamics.
    3. Jan Eeckhout & Philipp Kircher, 2010. "Sorting and Decentralized Price Competition," Econometrica, Econometric Society, vol. 78(2), pages 539-574, March.
    4. John Kennes & Daniel le Maire, 2013. "Competing Auctions of Skills," CAM Working Papers 2014_01, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics.
    5. Philipp Kircher, 2009. "Efficiency of Simultaneous Search," Journal of Political Economy, University of Chicago Press, vol. 117(5), pages 861-913, October.
    6. Philipp Kircher, 2007. "Efficiency of Directed Search," 2007 Meeting Papers 93, Society for Economic Dynamics.
    7. Suren Basov & John Ian King & Lawrence Uren, 2010. "The Employed, the Unemployed, and the Unemployable: Directed Search with Worker Heterogeneity," Working Papers 2010.03, School of Economics, La Trobe University.
    8. Shouyong Shi, 2000. "The Research Agenda: Search Theory beyond the Matching Function," EconomicDynamics Newsletter, Review of Economic Dynamics, vol. 1(2), April.
    9. Jan Eeckhout & Philipp Kircher, 2011. "Identifying Sorting--In Theory," Review of Economic Studies, Oxford University Press, vol. 78(3), pages 872-906.
    10. Gillian Hamilton & Aloysius Siow, 1999. "Marriage and Fertility in a Catholic Society: Eighteenth-Century Quebec," Working Papers siow-99-01, University of Toronto, Department of Economics.
    11. Sheng Bi & Yuanyuan Li, 2016. "Holdup and hiring discrimination with search friction," Documents de travail du Centre d'Economie de la Sorbonne 16002, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    12. John Kennes, 2004. "Competitive Auctions: Theory and Application," Discussion Papers 04-16, University of Copenhagen. Department of Economics.
    13. Moritz Ritter, 2015. "Trade and inequality in a directed search model with firm and worker heterogeneity," Canadian Journal of Economics, Canadian Economics Association, vol. 48(5), pages 1902-1916, December.
    14. Huw Lloyd-Ellis & Derek Stacey & Allen Head, 2017. "Inequality, Frictional Assignment and Home-ownership," 2017 Meeting Papers 1336, Society for Economic Dynamics.
    15. Shouyong Shi, 2005. "Frictional Assignment, Part II: Infinite Horizon and Inequality," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(1), pages 106-137, January.
    16. Guerrieri, Veronica & Julien, Benoit & Kircher, Philipp & Wright, Randall, 2017. "Directed Search: A Guided Tour," CEPR Discussion Papers 12315, C.E.P.R. Discussion Papers.
    17. Sheng Bi & Yuanyuan Li, 2016. "Holdup and hiring discrimination with search friction," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-01277548, HAL.
    18. Benoit Julien & John Kennes & Ian King, 2000. "Bidding for Labor," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(4), pages 619-649, October.
    19. John Kennes & Daniel le Maire, 2013. "Job Heterogeneity and Coordination Frictions," Economics Working Papers 2013-09, Department of Economics and Business Economics, Aarhus University.
    20. Richard Rogerson & Robert Shimer & Randall Wright, 2004. "Search-Theoretic Models of the Labor Market-A Survey," NBER Working Papers 10655, National Bureau of Economic Research, Inc.
    21. Shi, Shouyong, 2001. "Frictional Assignment. I. Efficiency," Journal of Economic Theory, Elsevier, vol. 98(2), pages 232-260, June.

    More about this item

    Keywords

    Frictional matching; Market tightness; Skills; Machines; Wage distribution;

    JEL classification:

    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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