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Efficiency In A Matching Model With Heterogeneous Agents: Too Many Good Or Bad Jobs?

  • Maite Blázquez

    ()

  • Marcel Jansen

    ()

This paper analyzes the efficiency of the equilibrium allocation in a matching model with two types of workers and jobs. The technology is such that high-skill workers can perform all jobs, while low-skill workers can only perform unskilled jobs. In this setup two types equilibria may occur. A “cross-skill matching equilibrium” in which high-skill workers accept all jobs and an “ex-post segmentation equilibrium” in which they accept only skilled jobs. Our first result shows that the equilibrium with ex-post bargaining is never efficient. Second, under Hosios´ (1990) condition we show that low-skill workers are overvalued, while the opposite holds for high-skill workers. In equilibrium, firms therefore create too few unskilled jobs and too many skilled jobs. In addition, high-skill workers may decide to accept unskilled jobs while the efficient allocation features ex-post segmentation. Finally, in an extension we show that efficiency can be restored through taxation and we analyze how workers´ bargaining strength affects unemployment and the degree of skill-mismatch.

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Paper provided by Universidad Carlos III, Departamento de Economía in its series Economics Working Papers with number we035019.

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Date of creation: Oct 2003
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Handle: RePEc:cte:werepe:we035019
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  1. Juan J. Dolado & Marcel Jansen & Juan F. Jimeno, 2002. "A Matching Model Of Crowding-Out And On-The- Job Search (With An Application To Spain)," Economics Working Papers we022809, Universidad Carlos III, Departamento de Economía.
  2. Shimer, R. & Smith, L., 1997. "Assortative Matching and Search," Working papers 97-2a, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. Mortensen, Dale T, 1982. "Property Rights and Efficiency in Mating, Racing, and Related Games," American Economic Review, American Economic Association, vol. 72(5), pages 968-79, December.
  4. Juan J. Dolado & Marcel Jansen & Juan F. Jimeno, 2008. "On the job search in a matching model with heterogeneous jobs and workers," Banco de Espa�a Working Papers 0813, Banco de Espa�a.
  5. Mortensen, Dale T & Pissarides, Christopher A, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 397-415, July.
  6. P. Diamond, 1980. "Aggregate Demand Management in Search Equilibrium," Working papers 268, Massachusetts Institute of Technology (MIT), Department of Economics.
  7. Sattinger, Michael, 1995. "Search and the Efficient Assignment of Workers to Jobs," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(2), pages 283-302, May.
  8. Burdett, Kenneth & Coles, Melvyn G, 1999. "Long-Term Partnership Formation: Marriage and Employment," Economic Journal, Royal Economic Society, vol. 109(456), pages F307-34, June.
  9. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 279-98, April.
  10. Moen, E.R., 1995. "Competitive Search Equilibrium," Memorandum 37/1995, Oslo University, Department of Economics.
  11. James Albrecht & Susan Vroman, 2002. "A Matching Model with Endogenous Skill Requirements," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(1), pages 283-305, February.
  12. 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 827-49, November.
  13. Shimer Robert & Smith Lones, 2001. "Matching, Search, and Heterogeneity," The B.E. Journal of Macroeconomics, De Gruyter, vol. 1(1), pages 1-18, April.
  14. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, June.
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