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On-The-Job Search and Sorting

Author

Listed:
  • Gautier, Pieter A.

    (Vrije Universiteit Amsterdam)

  • Teulings, Coen

    (Utrecht University)

  • van Vuuren, Aico

    (University of Groningen)

Abstract

We characterize the equilibrium of a search model with a continuum of job and worker types, wage bargaining, free entry of vacancies and on-the-job search. The decentralized economy with monopsonistic wage setting yields too many vacancies and hence too low unemployment compared to first best. This is due to a business-stealing externality. Raising workers' bargaining power resolves this inefficiency. Unemployment benefits are a second best alternative to this policy. We establish simple relations between the losses in production due to search frictions and wage differentials on the one hand and unemployment on the other hand. Both can be used for empirical testing.

Suggested Citation

  • Gautier, Pieter A. & Teulings, Coen & van Vuuren, Aico, 2005. "On-The-Job Search and Sorting," IZA Discussion Papers 1687, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp1687
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    References listed on IDEAS

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    1. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
    2. Pieter A. Gautier & Coen N. Teulings, 2006. "How Large are Search Frictions?," Journal of the European Economic Association, MIT Press, vol. 4(6), pages 1193-1225, December.
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    21. Mortensen, Dale T. & Pissarides, Christopher A., 1999. "New developments in models of search in the labor market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 39, pages 2567-2627, Elsevier.
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    Cited by:

    1. Pieter A. Gautier & Coen N. Teulings, 2006. "How Large are Search Frictions?," Journal of the European Economic Association, MIT Press, vol. 4(6), pages 1193-1225, December.
    2. Gadi Barlevy & H. N. Nagaraja, 2006. "Identification of Search Models with Initial Condition Problems," 2006 Meeting Papers 4, Society for Economic Dynamics.
    3. Frédéric Gavrel & Isabelle Lebon & Therese Rebière, 2010. "Career Paths, Unemployment, and the Efficiency of the Labor Market: Should Youth Employment Be Subsidized?," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 12(3), pages 533-560, June.
    4. Gadi Barlevy & H. N. Nagaraja, 2010. "Estimating Mobility Rates in Search Models with Initial Condition Problems," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(4), pages 780-799, October.
    5. Gautier, P.A. & Teulings, C.N., 2009. "Search and the city," Regional Science and Urban Economics, Elsevier, vol. 39(3), pages 251-265, May.
    6. Gautier, Pieter A. & Zenou, Yves, 2010. "Car ownership and the labor market of ethnic minorities," Journal of Urban Economics, Elsevier, vol. 67(3), pages 392-403, May.
    7. Yale University & Rafael Lopes de Melo, 2008. "Assortative Matching in the Brazilian Labor Market," 2008 Meeting Papers 801, Society for Economic Dynamics.

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    More about this item

    Keywords

    optimal UI benefits; assignment; efficiency; on-the-job search; search frictions;
    All these keywords.

    JEL classification:

    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers

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