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An alternative to signaling: directed search and substitution

Author

Listed:
  • Levy, Matthew
  • Szentes, Balázs

Abstract

This paper analyzes a labor market, where (i) workers can acquire an observable skill at no cost, (ii) firms differ in unobserved productivity, (iii) workers' skill and firms' productivity are substitutes and (iv) firms' search is directed. The main result is that, if the entry cost of firms is small, no worker acquires the skill in the unique equilibrium. For intermediate entry costs, a positive measure of workers obtain the skill, and the number of skilled workers goes to one as entry costs become large. Welfare is highest when the entry cost is high.

Suggested Citation

  • Levy, Matthew & Szentes, Balázs, 2016. "An alternative to signaling: directed search and substitution," LSE Research Online Documents on Economics 66148, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:66148
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    File URL: http://eprints.lse.ac.uk/66148/
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • 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
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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