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Timing "Disturbances" in Labor Market Contracting: Roth's Findings and the Effects of Labor Market Monopsony

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  • George L. Priest

Abstract

This paper addresses Alvin Roth's findings of market contracting at times earlier than optimal for market participants, which Roth describes as market "unraveling," a market failure he proposes to solve by designing centralized buyer-seller matching programs. This paper shows that, while Roth's engineering solutions are ingenious, the early contracting phenomena derive from labor market monopsony. Under monopsony, price is unavailable to clear the market; time of contract becomes the currency for working out market forces. Roth's matching serves to shore up the monopsony and would be unnecessary if the monopsony were removed; a superior solution is to end the monopsony. (c) 2010 by The University of Chicago. All rights reserved.

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  • George L. Priest, 2010. "Timing "Disturbances" in Labor Market Contracting: Roth's Findings and the Effects of Labor Market Monopsony," Journal of Labor Economics, University of Chicago Press, vol. 28(2), pages 447-472, April.
    • Handle: RePEc:ucp:jlabec:v:28:y:2010:i:2:p:447-472
    DOI: 10.1086/650761
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    References listed on IDEAS

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    1. Michael R Ransom & David P. Sims, 2010. "Estimating the Firm's Labor Supply Curve in a "New Monopsony" Framework: Schoolteachers in Missouri," Journal of Labor Economics, University of Chicago Press, vol. 28(2), pages 331-355, April.
    2. Alvin E Roth & Richard A Posner & Christine Jolls & Christopher Avery, 2007. "The New Market for Federal Judicial Law Clerks," Levine's Bibliography 843644000000000288, UCLA Department of Economics.
    3. Beth Asch & Paul Heaton, 2008. "Monopsony and Labor Supply in the Army and Navy," Working Papers 1107, Princeton University, Department of Economics, Industrial Relations Section..
    4. Jeremy T. Fox, 2010. "Estimating the Employer Switching Costs and Wage Responses of Forward-Looking Engineers," Journal of Labor Economics, University of Chicago Press, vol. 28(2), pages 357-412, April.
    5. George Priest, "undated". "Reexamining the Market for Judicial Clerks and other Assortative Markets," Yale Law School John M. Olin Center for Studies in Law, Economics, and Public Policy Working Paper Series yale_lepp-1028, Yale Law School John M. Olin Center for Studies in Law, Economics, and Public Policy.
    6. Mongell, Susan & Roth, Alvin E, 1991. "Sorority Rush as a Two-Sided Matching Mechanism," American Economic Review, American Economic Association, vol. 81(3), pages 441-464, June.
    7. Roth, Alvin E & Xing, Xiaolin, 1994. "Jumping the Gun: Imperfections and Institutions Related to the Timing of Market Transactions," American Economic Review, American Economic Association, vol. 84(4), pages 992-1044, September.
    8. Beth Asch & Paul Heaton, 2008. "Monopsony and Labor Supply in the Army and Navy," Working Papers 1107, Princeton University, Department of Economics, Industrial Relations Section..
    9. Posner, Richard A. & Avery, Christopher & Jolls, Christine & Roth, Alvin, 2001. "The Market for Federal Judicial Law Clerks," Scholarly Articles 2623748, Harvard University Department of Economics.
    10. Torberg Falch, 2010. "The Elasticity of Labor Supply at the Establishment Level," Journal of Labor Economics, University of Chicago Press, vol. 28(2), pages 237-266, April.
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    Cited by:

    1. Tinglong Dai & Kinshuk Jerath, 2019. "Salesforce Contracting Under Uncertain Demand and Supply: Double Moral Hazard and Optimality of Smooth Contracts," Marketing Science, INFORMS, vol. 38(5), pages 852-870, September.
    2. Manning, Alan, 2011. "Imperfect Competition in the Labor Market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 11, pages 973-1041, Elsevier.
    3. Okudaira, Hiroko, 2020. "Regulating the timing of job search: evidence from the labor market for new college graduates," Labour Economics, Elsevier, vol. 67(C).
    4. Alvin E. Roth, 2010. "Marketplace Institutions Related to the Timing of Transactions," NBER Working Papers 16556, National Bureau of Economic Research, Inc.
    5. Orley C. Ashenfelter & Henry Farber & Michael R Ransom, 2010. "Labor Market Monopsony," Journal of Labor Economics, University of Chicago Press, vol. 28(2), pages 203-210, April.
    6. Alvin E. Roth, 2012. "Marketplace Institutions Related to the Timing of Transactions: Reply to Priest," Journal of Labor Economics, University of Chicago Press, vol. 30(2), pages 479-494.

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