IDEAS home Printed from
   My bibliography  Save this paper

Market Integration, Matching and Wages



When it is costly for agents to find a match, integrating small markets into a larger one increases the matching difficulty. We examine such dependence of the number of matches on the market size by explicitely modelling firms' attempt to attract workers by posting wages. It is shown that integration reduces the relative market power of agents on the much shorter side of the market. Thus, if there are at least as many workers as jobs, integrating markets increases wages; if there are much fewer workers than jobs, integrating markets reduces wages. This is the case even though integration does not change the worker/job ratio in the market. Regardless of the wage response, market integration reduces social welfare when everyone is weighted equally and when other benefits of integration such as improved match qualities are absent. We characterize the upper bound on the welfare loss from increased matching difficulty and show that the marginal welfare loss shrinks as the market becomes increasingly integrated. Lorsqu'il est coûteux pour les agents économiques de trouver un partenaire d'échange, le fait d'intégrer de petits marchés dans un plus grand augmente les difficultés d'appariement. Nous examinons dans quelle mesure les nombre d'appariements dépend de la taille du marché en modélisant explicitement les tentatives de la firme d'attirer des travailleurs en affichant des salaires. Nous montrons que l'intégration réduit le pouvoir de marché des agents sur le côté le moins saturé du marché. Ainsi, s'il y a au moins autant de travailleurs que de postes, l'intégration des marchés augmente les salaires; s'il y en a beaucoup moins, l'intégration réduit les salaires. Ceci est le cas même si le ratio travailleurs/postes reste inchangé. Indépendamment de la réaction des salaires, l'intégration des marchés réduit le bien-être social lorsque chacun est pondéré uniformément et lorsque d'autres bienfaits de l'intégration comme la meilleure qualité des appariements sont absents. Nous caractérisons la limite supérieure des pertes de bien-être résultant de difficultés plus élevées d'appariement et montrons que la perte marginale de bien-être décroît lorsque le marché s'intègre de plus en plus.

Suggested Citation

  • Melanie Cao & Shouyong Shi, 1999. "Market Integration, Matching and Wages," Cahiers de recherche CREFE / CREFE Working Papers 79, CREFE, Université du Québec à Montréal.
  • Handle: RePEc:cre:crefwp:79

    Download full text from publisher

    File URL:
    File Function: Main text
    Download Restriction: no

    References listed on IDEAS

    1. 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.
    Full references (including those not matched with items on IDEAS)

    More about this item


    market integration; wage posting; endogenous matches;

    JEL classification:

    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cre:crefwp:79. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Stéphane Pallage). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.