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Decentralized Market Processes to Stable Job Matchings with Competitive Salaries

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  • Bo Chen
  • Satoru Fujishige
  • Zaifu Yang

Abstract

We analyze a decentralized trading process in a basic labor market where heterogeneous firms and workers meet directly and randomly, and negotiate salaries with each other over time. Firms and workers may not have a complete picture of the entire market and can thus behave myopically in the process. Our main result establishes that, starting from an arbitrary initial market state, there exists a finite sequence of successive myopic (firm-worker) pair improvements, or bilateral trades, leading to a stable matching between firms and workers with a scheme of competitive salary offers. An important implication of this result is that a general random process where every possible bilateral trade is chosen with a positive probability converges with probability one to a competitive equilibrium of the market.

Suggested Citation

  • Bo Chen & Satoru Fujishige & Zaifu Yang, 2011. "Decentralized Market Processes to Stable Job Matchings with Competitive Salaries," Discussion Papers 11/03, Department of Economics, University of York.
    • Handle: RePEc:yor:yorken:11/03
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    References listed on IDEAS

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    More about this item

    Keywords

    Decentralized market; job matching; random path; competitive salary; stability;
    All these keywords.

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior

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