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Two-Sided Search, Heterogeneous Skills and Labor Market Performance

Author

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  • Danthine, Samuel

    (University of Québec at Montréal)

Abstract

A quantitative model of two-sided search with ex-ante heterogeneity in both worker and entrepreneurial skills is proposed. It is possible to characterize both the competitive equilibrium and the optimal solution numerically. The competitive equilibrium is shown to be suboptimal. Less-skilled workers and firms are too selective, not matching with their comparable counterparts. High-types, on the other hand, are not selective enough. The model shows promise as a tool for evaluating the effects of labor policies (and other changes in the economy) on the composition of unemployment and on unemployment duration, as well as on wage distributions. The effect of introducing a simple unemployment insurance scheme is then twofold. First, it increases unemployment by allowing a greater proportion of low types not to match, which decreases output. Second, it decreases mismatch, which has a positive effect on output. It is possible to have a positive effect of unemployment insurance on productivity and find the optimal level of unemployment insurance. Finally, it is shown that assuming risk-neutral workers in this model is not innocuous.

Suggested Citation

  • Danthine, Samuel, 2005. "Two-Sided Search, Heterogeneous Skills and Labor Market Performance," IZA Discussion Papers 1572, IZA Network @ LISER.
    • Handle: RePEc:iza:izadps:dp1572
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Blázquez, Maite & Jansen, Marcel, 2008. "Search, mismatch and unemployment," European Economic Review, Elsevier, vol. 52(3), pages 498-526, April.
    2. Auray, Stéphane & Danthine, Samuel, 2005. "Bargaining Frictions and Hours Worked," IZA Discussion Papers 1722, IZA Network @ LISER.
    3. Etienne C^ome & Marie Cottrell & Patrice Gaubert, 2015. "Analysis of Professional Trajectories using Disconnected Self-Organizing Maps," Papers 1507.00578, arXiv.org.
    4. repec:aia:aiaswp:wp37 is not listed on IDEAS
    5. Auray, Stéphane & Danthine, Samuel, 2010. "Bargaining frictions, labor income taxation, and economic performance," European Economic Review, Elsevier, vol. 54(6), pages 778-802, August.
    6. Oskamp, Frank & Snower, Dennis J., 2007. "Interactions between employment and training policies," Kiel Working Papers 1389, Kiel Institute for the World Economy.

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    More about this item

    Keywords

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    JEL classification:

    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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