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Job search under asymmetric information: endogenous wage dispersion and unemployment stigma

Author

Listed:
  • Shuaizhang Feng

    (Jinan University)

  • Lars Lefgren

    (Brigham Young University)

  • Brennan C. Platt

    (Brigham Young University)

  • Bingyong Zheng

    (Shanghai University of Finance and Economics)

Abstract

We present a model of directed job search with asymmetric information regarding worker type. While job applicants know their productivity type, firms can only observe the duration of unemployment as well as a noisy signal of worker type. Firms can offer an unscreened wage or a wage that is conditioned on passing the screening and the duration of unemployment. This framework leads to three possible equilibria which depend on model parameter values. We describe the circumstances under which each equilibrium may result and the empirical implications of each equilibrium. Our model sheds light into wage scarring, unemployment duration, wage dispersion and firm-wage sorting, as well as the effects of unemployment insurance and minimum wages on search behavior and the distribution of wages.

Suggested Citation

  • Shuaizhang Feng & Lars Lefgren & Brennan C. Platt & Bingyong Zheng, 2019. "Job search under asymmetric information: endogenous wage dispersion and unemployment stigma," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 67(4), pages 817-851, June.
    • Handle: RePEc:spr:joecth:v:67:y:2019:i:4:d:10.1007_s00199-018-1099-7
    DOI: 10.1007/s00199-018-1099-7
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    References listed on IDEAS

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    3. Ioannis Kospentaris, 2021. "Unobserved Heterogeneity and Skill Loss in a Structural Model of Duration Dependence," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 39, pages 280-303, January.
    4. Saara Hämäläinen & Vaiva Petrikaitė, 2024. "Prediction algorithms in matching platforms," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 78(3), pages 979-1020, November.

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    More about this item

    Keywords

    Wage dispersion; Directed search; Unemployment stigma; Wage scarring;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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