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Competitive on-the-job search

  • Pietro Garibaldi

    (Collegio Carlos Alberto)

  • Espen Rasumus Moen

    (Norwegian School of Management)

The paper proposes a model of on- and off-the-job search that combines convex hiring costs and directed search. Firms permanently differ in productivity levels, their production function features constant or decreasing returns to scale, and search costs are convex in search intensity. Wages are determined in a competitive manner, as firms advertise wage contracts (expected discounted incomes) so as to balance wage costs and search costs (queue length). An important assumption is that a firm is able to sort out its coordination problems with their employees in such a way that the on-the-job search behavior of workers maximizes the match surplus. Our model has several interesting features. First, it is close in spirit to the competitive model, with a tractable and unique equilibrium, and is therefore useful for empirical testing. Second, the resulting equilibrium gives rise to an efficient allocation of resources. Third, the equilibrium is characterized by a job ladder: unemployed workers search for low-productivity, low-wage firms. Workers in low-wage firms search for firms slightly higher on the productivity/ ladder, and so forth up to the workers in the second most productive firms who only apply to the most productive firms. Finally, the model rationalizes empirical regularities of on-the-job search and labor turnover. First, job-to job mobility falls with average firm tenure and firm size. Second, wages increase with firm size, and wage growth is larger in fast-growing firms.

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Paper provided by Society for Economic Dynamics in its series 2010 Meeting Papers with number 396.

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Date of creation: 2010
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Handle: RePEc:red:sed010:396
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  1. Eric J. Bartelsman & Mark Doms, 2000. "Understanding productivity: lessons from longitudinal microdata," Finance and Economics Discussion Series 2000-19, Board of Governors of the Federal Reserve System (U.S.).
  2. Diego Restuccia & Richard Rogerson, 2007. "Policy Distortions and Aggregate Productivity with Heterogeneous Plants," NBER Working Papers 13018, National Bureau of Economic Research, Inc.
  3. Alain Delacroix & Shouyong Shi, 2003. "Directed Search On the Job and the Wage Ladder," Working Papers shouyong-03-04, University of Toronto, Department of Economics.
  4. Rasmus Lentz & Dale T. Mortensen, 2005. "Productivity Growth And Worker Reallocation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(3), pages 731-749, 08.
  5. Yashiv, E., 1999. "Hiring as Investment Behavior," Papers 35-99, Tel Aviv.
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