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Ranking, Unemployment Duration, and Wages

  • Olivier Jean Blanchard
  • Peter Diamond

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.

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File URL: http://www.nber.org/papers/w3387.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3387.

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Date of creation: Jun 1990
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Publication status: published as Review of Economic Studies, Vol. 61-3 No. 208, July 1994, pp. 417-434.
Handle: RePEc:nbr:nberwo:3387
Note: EFG
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  1. Diamond, Peter A, 1982. "Wage Determination and Efficiency in Search Equilibrium," Review of Economic Studies, Wiley Blackwell, vol. 49(2), pages 217-27, April.
  2. Calvo, Guillermo, 1979. "Quasi-Walrasian Theories of Unemployment," American Economic Review, American Economic Association, vol. 69(2), pages 102-07, May.
  3. Olivier Jean Blanchard & Peter A. Diamond, 1989. "The Aggregate Matching Function," NBER Working Papers 3175, National Bureau of Economic Research, Inc.
  4. 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.
  5. Olivier Jean Blanchard, 1989. "Two Tools for Analyzing Unemployment," NBER Working Papers 3168, National Bureau of Economic Research, Inc.
  6. 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 363-82, July.
  7. Butters, Gerard R, 1977. "Equilibrium Distributions of Sales and Advertising Prices," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 465-91, October.
  8. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
  9. Holzer, Harry J & Katz, Lawrence F & Krueger, Alan B, 1991. "Job Queues and Wages," The Quarterly Journal of Economics, MIT Press, vol. 106(3), pages 739-68, August.
  10. 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.
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