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Bilateral Search as an Explanation for Labor Market Segmentation and Other Anomalies

  • Kevin Lang
  • William T. Dickens

Since applying for jobs is costly, workers prefer applying where their employment probability is high and, therefore, to jobs attracting fewer higher quality applicants. Since creating vacancies is expensive, firms create more vacancies when job-seeking is high. Our model captures these ideas and accounts for worker heterogeneity by assuming three types of nearly identical workers. These infinitesimal quality differences generate a discrete wage distribution. For some parameter values lower quality workers have discretely lower wages and higher unemployment than better workers. Moreover, increasing the number of the lowest quality workers can make all workers better off.

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File URL: http://www.nber.org/papers/w4461.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4461.

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Date of creation: Sep 1993
Date of revision:
Handle: RePEc:nbr:nberwo:4461
Note: LS
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  1. Lawrence F. Katz & Alan B. Krueger, 1992. "The effect of the minimum wage on the fast-food industry," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 46(1), pages 6-21, October.
  2. Montgomery, James D, 1991. "Equilibrium Wage Dispersion and Interindustry Wage Differentials," The Quarterly Journal of Economics, MIT Press, vol. 106(1), pages 163-79, February.
  3. Kevin Lang & William T. Dickens, 1992. "Labor Market Segmentation, Wage Dispersion and Unemployment," NBER Working Papers 4073, National Bureau of Economic Research, Inc.
  4. David Card, 1989. "The Impact of the Mariel Boatlift on the Miami Labor Market," NBER Working Papers 3069, National Bureau of Economic Research, Inc.
  5. Sattinger, Michael, 1990. "Unemployment, the Market for Interviews, and Wage Employment," Journal of Political Economy, University of Chicago Press, vol. 98(2), pages 356-71, April.
  6. 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.
  7. Howitt, Peter, 1988. "Business Cycles with Costly Search and Recruiting," The Quarterly Journal of Economics, MIT Press, vol. 103(1), pages 147-65, February.
  8. Lang, Kevin, 1991. "Persistent Wage Dispersion and Involuntary Unemployment," The Quarterly Journal of Economics, MIT Press, vol. 106(1), pages 181-202, February.
  9. 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.
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