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Recruitment Policy When Firms Observe Workers' Employment Status: an Equilibrium Search Approach

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  • Carrillo-Tudela, C

Abstract

This paper considers an equilibrium search model, where firms use information on a worker's labour market status when recruiting new hires, and all workers search for a job. We show that firms segment their workforce in two. Unemployed workers are offered a lower wage than the workers they recruit from employment in a competing firm even when these workers have the same productivity. The unique equilibrium is given by the Diamond outcome in the market for unemployed workers and the Burdett and Mortensen (B-M) outcome in the market for employed workers. We show that the offer and earnings distributions derived in the model are first order stochastically dominated by the ones given in B-M and all workers are worse off. We also show that in this environment information on employment status is sufficient for firms to obtain the same profits as if they had complete information about workers' reservation wages and outside offers.

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  • Carrillo-Tudela, C, 2004. "Recruitment Policy When Firms Observe Workers' Employment Status: an Equilibrium Search Approach," Economics Discussion Papers 2732, University of Essex, Department of Economics.
    • Handle: RePEc:esx:essedp:2732
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    1. Fabien Postel-Vinay & Jean-Marc Robin, 2002. "The Distribution of Earnings in an Equilibrium Search Model with State-Dependent Offers and Counteroffers," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(4), pages 989-1016, November.
    2. van den Berg, Gerard J, 1999. "Empirical Inference with Equilibrium Search Models of the Labour Market," Economic Journal, Royal Economic Society, vol. 109(456), pages 283-306, June.
    3. Bontemps, Christian & Robin, Jean-Marc & van den Berg, Gerard J, 2000. "Equilibrium Search with Continuous Productivity Dispersion: Theory and Nonparametric Estimation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(2), pages 305-358, May.
    4. Gregory, Mary & Jukes, Robert, 2001. "Unemployment and Subsequent Earnings: Estimating Scarring among British Men 1984-94," Economic Journal, Royal Economic Society, vol. 111(475), pages 607-625, November.
    5. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
    6. Farber, Henry S., 1999. "Mobility and stability: The dynamics of job change in labor markets," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 37, pages 2439-2483, Elsevier.
    7. Ben Lockwood, 1991. "Information Externalities in the Labour Market and the Duration of Unemployment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(4), pages 733-753.
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    Cited by:

    1. Carrillo-Tudela, C, 2005. "Wage-Experience Contracts and Employment Status," Economics Discussion Papers 2733, University of Essex, Department of Economics.

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