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Recruitment Policy When Firms Observe Workers' Employment Status: an Equilibrium Search Approach

  • Carlos Carrillo Tudela

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This paper considers an equilibrium search model, where firms use information on a worker's labour market status when recruiting new hires, and all workers search for a job. We show that firms segment their workforce in two. Unemployed workers are offered a lower wage than the workers they recruit from employment in a competing firm even when these workers have the same productivity. The unique equilibrium is given by the Diamond outcome in the market for unemployed workers and the Burdett and Mortensen (B-M) outcome in the market for employed workers. We show that the offer and earnings distributions derived in the model are first order stochastically dominated by the ones given in B-M and all workers are worse off. We also show that in this environment information on employment status is sufficient for firms to obtain the same profits as if they had complete information about workers' reservation wages and outside offers.

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File URL: http://www.essex.ac.uk/economics/discussion-papers/papers-text/dp584.pdf
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Paper provided by University of Essex, Department of Economics in its series Economics Discussion Papers with number 584.

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Date of creation: 02 Nov 2004
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Handle: RePEc:esx:essedp:584
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  1. Bontemps, C. & Robin, J.M. & van den Berg, G.J., 1998. "Equilibrium Search with Continuous Productivity Dispersion: Theory and Non-Parametric Estimation," Papers 98-07, Centre for Labour Market and Social Research, Danmark-.
  2. Margaret Stevens, 2004. "Wage-Tenure Contracts in a Frictional Labour Market: Firms' Strategies for Recruitment and Retention," Review of Economic Studies, Oxford University Press, vol. 71(2), pages 535-551.
  3. Gregory, Mary & Jukes, Robert, 2001. "Unemployment and Subsequent Earnings: Estimating Scarring among British Men 1984-94," Economic Journal, Royal Economic Society, vol. 111(475), pages F607-25, November.
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