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Endogenous ranking in a two-sector urn-ball matching process

  • Rose, Giuseppe

This paper contributes to the debate concerning the micro-foundation of matching functions in frictional labor markets. The focus is on a particular matching regime, i.e., the so-called urn-ball process. It is shown that in a two-sector economy, even in the presence of heterogeneous workers, the assumption of applicants-ranking may be misleading. Instead, the choice concerning the adoption of either ranking or no-ranking behavior is endogenous and it is affected by both the tightness of the two sectors and the composition of the labor force in terms of skills. Moreover it is proved that exogenous shocks may change the form of the matching function. This result casts additional doubts on the assumption of exogenous matching functions often made in empirical works aimed at assessing the effectiveness of policy measures.

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Paper provided by Kiel Institute for the World Economy (IfW) in its series Economics Discussion Papers with number 2013-40.

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Date of creation: 2013
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Handle: RePEc:zbw:ifwedp:201340
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  1. Daron Acemoglu & Philippe Aghion & Fabrizio Zilibotti, 2002. "Distance to Frontier, Selection, and Economic Growth," NBER Working Papers 9066, National Bureau of Economic Research, Inc.
  2. Borowczyk-Martins, Daniel & Jolivet, Grégory & Postel-Vinay, Fabien, 2011. "Accounting For Endogenous Search Behavior in Matching Function Estimation," CEPR Discussion Papers 8471, C.E.P.R. Discussion Papers.
  3. Brown, Alessio J. G. & Merkl, Christian & Snower, Dennis J., 2009. "An Incentive Theory of Matching," IZA Discussion Papers 4145, Institute for the Study of Labor (IZA).
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  15. P. Diamond, 1980. "Aggregate Demand Management in Search Equilibrium," Working papers 268, Massachusetts Institute of Technology (MIT), Department of Economics.
  16. Michael Neugart, 2004. "Endogenous Matching Functions: An Agent-Based Computational Approach," Advances in Complex Systems (ACS), World Scientific Publishing Co. Pte. Ltd., vol. 7(02), pages 187-201.
  17. Gerard R. Butters, 1977. "Equilibrium Distributions of Sales and Advertising Prices," Review of Economic Studies, Oxford University Press, vol. 44(3), pages 465-491.
  18. Ordine, Patrizia & Rose, Giuseppe, 2011. "Inefficient self-selection into education and wage inequality," Economics of Education Review, Elsevier, vol. 30(4), pages 582-597, August.
  19. Christopher A. Pissarides, 1987. "Search, Wage Bargains and Cycles," Review of Economic Studies, Oxford University Press, vol. 54(3), pages 473-483.
  20. Albrecht, James & Tan, Serene & Gautier, Pieter & Vroman, Susan, 2004. "Matching with multiple applications revisited," Economics Letters, Elsevier, vol. 84(3), pages 311-314, September.
  21. Daron Acemoglu, 1997. "Training and Innovation in an Imperfect Labour Market," Review of Economic Studies, Oxford University Press, vol. 64(3), pages 445-464.
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