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A Matching Model with Endogenous Skill Requirements

  • James Albrecht

    (Georgetown University)

  • Susan Vroman

    (Georgetown University)

In this paper, we consider a labor market in which workers differ in their abilities and jobs differ in their skill requirements. We take the distribution of worker abilities as given (a fraction p of the workers is low-skill, a fraction 1-p is high-skill), but we model the determination of skill requirements by firms. High-skill jobs produce more output than low-skill jobs; however, high-skill jobs require high-skill workers and thus are more difficult to fill. We use a matching model together with a Nash bargaining approach to wage setting to determine the equilibrium mix of job types, along with the equilibrium relationship between worker/job characteristics and wages. We derive implications for the distributions of unemployment durations across workers and of vacancy durations across jobs. We use this model to examine the comparative static effects of a relative increase in the productivity of high-skill jobs (interpreted as "skill-biased technical change") and of changes in the mix of worker types in the labor force. Specifically, we examine how these changes affect aggregate unemployment and wage inequality via their effects on the equilibrium distribution of skill requirements. We also examine the effects of policy interventions such as unemployment compensation on the equilibrium.

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Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 0774.

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Date of creation: 01 Aug 2000
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Handle: RePEc:ecm:wc2000:0774
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  1. Saint-Paul, Gilles, 1996. "Are the unemployed unemployable?," European Economic Review, Elsevier, vol. 40(7), pages 1501-1519, August.
  2. James Heckman & Lance Lochner & Christopher Taber, 1998. "Explaining Rising Wage Inequality: Explanations With A Dynamic General Equilibrium Model of Labor Earnings With Heterogeneous Agents," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(1), pages 1-58, January.
  3. Sicherman, Nachum, 1991. ""Overeducation" in the Labor Market," Journal of Labor Economics, University of Chicago Press, vol. 9(2), pages 101-22, April.
  4. McKenna, C. J., 1996. "Education and the distribution of unemployment," European Journal of Political Economy, Elsevier, vol. 12(1), pages 113-132, April.
  5. Berman, Eli & Bound, John & Machin, Stephen, 1997. "Implications of Skill-Biased Technological Change: International Evidence," Working Paper Series 486, Research Institute of Industrial Economics.
  6. P. Diamond, 1980. "Aggregate Demand Management in Search Equilibrium," Working papers 268, Massachusetts Institute of Technology (MIT), Department of Economics.
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  8. 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.
  9. repec:dgr:kubcen:98.104 is not listed on IDEAS
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  11. Berg, Gerard J. van den & Gautier, Pieter A. & Ours, Jan C., 1998. "Worker turnover at the firm level and crowding out of lower educated workers," Serie Research Memoranda 0049, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
  12. Berg, Gerard J. van den & Gautier, Pieter A. & Ours, Jan C., 1998. "Worker turnover at the firm level and crowding out of lower educated workers," Serie Research Memoranda 0049, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
  13. Daron Acemoglu, 1999. "Changes in Unemployment and Wage Inequality: An Alternative Theory and Some Evidence," American Economic Review, American Economic Association, vol. 89(5), pages 1259-1278, December.
  14. Machin, Stephen & Manning, Alan, 1997. "Can supply create its own demand? Implications for rising skill differentials," European Economic Review, Elsevier, vol. 41(3-5), pages 507-516, April.
  15. Daron Acemoglu, 2003. "Patterns of Skill Premia," Review of Economic Studies, Oxford University Press, vol. 70(2), pages 199-230.
  16. van den Berg, G. & Gautier, P.A. & van Ours, J.C. & Ridder, G., 1998. "Worker turnover at the firm level and crowding out of lower educated workers," Discussion Paper 98.104, Tilburg University, Center for Economic Research.
  17. Paul Beaudry & David Green, 1998. "What is Driving US and Canadian Wages: Exogenous Technical Change or Endogenous Choice of Technique?," NBER Working Papers 6853, National Bureau of Economic Research, Inc.
  18. Wood, Adrian, 1995. "North-South Trade, Employment and Inequality: Changing Fortunes in a Skill-Driven World," OUP Catalogue, Oxford University Press, number 9780198290155, March.
  19. Paul Krugman, 1994. "Past and prospective causes of high unemployment," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, issue Jan, pages 49-98.
  20. Vroman, Susan B., 1987. "Behavior of the firm in a market for heterogeneous labor," Journal of Economic Dynamics and Control, Elsevier, vol. 11(3), pages 313-329, September.
  21. Burdett, Kenneth & Mortensen, Dale T, 1998. "Wage Differentials, Employer Size, and Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 257-73, May.
  22. Machin, Stephen, 1996. "Wage Inequality in the UK," Oxford Review of Economic Policy, Oxford University Press, vol. 12(1), pages 47-64, Spring.
  23. 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.
  24. Mortensen, Dale T & Pissarides, Christopher A, 1999. "Unemployment Responses to 'Skill-Biased' Technology Shocks: The Role of Labour Market Policy," Economic Journal, Royal Economic Society, vol. 109(455), pages 242-65, April.
  25. repec:dgr:uvatin:19990075 is not listed on IDEAS
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