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Ranking, Unemployment Duration, And Wages

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  • BLANCHARD, O.J.
  • DIAMOND, P.

Abstract

Firms often receive multiple acceptable applications for vacancies, requiring a choice among candidates. This paper contrasts equilibria when firms select workers at random and when firms select the worker with the shortest spell of unemployment, called ranking. With the filling of vacancies unaffected by the selection rule, both equilibria have the same aggregate dynamics, but different distributions of unemployment durations. With the threat point for the Nash bargained wage being a worker with zero unemployment duration, the wage with ranking is much more sensitive to changes in the tightness of the labor market. The same holds for efficiency wages.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Blanchard, O.J. & Diamond, P., 1990. "Ranking, Unemployment Duration, And Wages," Working papers 546, Massachusetts Institute of Technology (MIT), Department of Economics.
  • Handle: RePEc:mit:worpap:546
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    References listed on IDEAS

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    1. Olivier Jean Blanchard, 1991. "Two Tools for Analysing Unemployment," International Economic Association Series, in: Marc Nerlove (ed.), Issues in Contemporary Economics, chapter 5, pages 102-127, Palgrave Macmillan.
    2. Barron, John M & Bishop, John, 1985. "Extensive Search, Intensive Search, and Hiring Costs: New Evidence on Employer Hiring Activity," Economic Inquiry, Western Economic Association International, vol. 23(3), pages 363-382, July.
    3. Avner Shaked & John Sutton, 1984. "The Semi-Walrasian Economy," STICERD - Theoretical Economics Paper Series 98, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    4. Olivier Jean Blanchard & Peter A. Diamond, 1989. "The Aggregate Matching Function," NBER Working Papers 3175, National Bureau of Economic Research, Inc.
    5. Harry J. Holzer & Lawrence F. Katz & Alan B. Krueger, 1991. "Job Queues and Wages," The Quarterly Journal of Economics, Oxford University Press, vol. 106(3), pages 739-768.
    6. Calvo, Guillermo, 1979. "Quasi-Walrasian Theories of Unemployment," American Economic Review, American Economic Association, vol. 69(2), pages 102-107, May.
    7. Oliver Jean Blanchard & Peter Diamond, 1989. "The Beveridge Curve," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 20(1), pages 1-76.
    8. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-444, June.
    9. Gerard R. Butters, 1977. "Equilibrium Distributions of Sales and Advertising Prices," Review of Economic Studies, Oxford University Press, vol. 44(3), pages 465-491.
    10. Peter A. Diamond, 1982. "Wage Determination and Efficiency in Search Equilibrium," Review of Economic Studies, Oxford University Press, vol. 49(2), pages 217-227.
    11. Olivier Jean Blanchard, 1991. "Two Tools for Analysing Unemployment," International Economic Association Series, in: Marc Nerlove (ed.), Issues in Contemporary Economics, chapter 5, pages 102-127, Palgrave Macmillan.
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