Abstract not found

I analyze the equilibrium in a labor market where firms offer wage-tenure contracts to direct the search of employed and unemployed workers. All workers are identical, every applicant observes all offers, and there is no coordination among individuals. I formulate the equilibrium with directed search and show that it exists. In common with undirected search, wages increase and quit rates decrease with tenure. Moreover, on-the-job search and wage-tenure contracts produce a continuous wage distribution among homogeneous workers. In contrast to undirected search, the applicants choose their targets optimally and separate themselves according to the values of their current contracts. Such endogenous separation generates several novel implications. First, wage mobility is limited in the sense that workers choose to move up on a wage ladder gradually when applying for jobs. Second, the density function of the wage distribution is decreasing at high wages. Third, an increase in the unemployment benefit or the minimum wage has no effect on an employed worker’s wage contract and his job-to-job transitions. Finally, equilibrium contracts and employed workers’ job-to-job transitions are independent of the distribution of workers. The last feature makes the model tractable for studying business cycles with on-the-job search.

Abstract not found

We study a labor market where workers choose the number of jobs to apply for and firms simultaneously post a wage. There exist two types of equilibria in the market. If the cost of applying for jobs is high, workers apply for just one job and firms offer the minimum wage; this number of job applications is adequate or insufficient from a welfare viewpoint. If the cost of applying for jobs is low, workers apply for two or for more jobs, there is wage dispersion and the number of applications workers send out is excessive from a welfare perspective. A minimum wage can be welfare improving because it compresses the wage distribution and reduces congestion effects caused by excessive applications. Since wage dispersion leads to rent-seeking behavior, an appropriately set mandatory wage can eliminate the congestion externality completely. However, if vacancy supply is determined by free entry there exists no wage policy that restores efficiency.

Most of the literature analyzing equilibrium effects of labor market policies assumes bilateral meetings between workers and firms. This ignores the frictions that arise when workers and firms meet in a multilateral way and cannot coordinate their application and hiring decisions. I analyze the magnitude of these frictions. For this purpose, I present an equilibrium search model of the labor market with an endogenous number of contacts between workers and firms. Firms post a wage and a recruitment technology that determines how many applicants they will interview. After observing these contracts, workers decide to which firms to apply. Sending more applications and interviewing more applicants are both costly activities but increase the probability to match. In equilibrium, contract dispersion arises endogenously and workers spread their applications over the different types of contracts. Estimation of the model on the Employment Opportunities Pilot Projects data set provides values for the cost of an application and the cost of an interview. These estimates are used to determine the output loss compared to a Walrasian world. Frictions on the worker and the firm side reduce output by approximately 1 % each. There is a potential role for activating labor market policies, because I show that for the estimated parameter values welfare can be improved if unemployed workers increase their search intensity.

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The speed at which unemployed workers …nd jobs depends on their search intensity. Most of the literature defines search intensity as a scalar that in‡uences the arrival rate of job offers. In this paper we treat it explicitly as the number of job applications that workers send out in a given period. This number of applications and the wage distribution are simultaneously determined. We structurally estimate the search cost distribution, the implied matching probabilities, the productivity of a match, and the flow value of non-labor market time within a segment. These estimates are then used to derive the socially optimal distribution of search intensities. We find that, from a social point of view, too little workers participate and that the unemployed workers search too much. The low participation rate reflects a standard hold-up problem and the excess number of applications per worker is due to rent seeking behavior. Most welfare gains can be realized by a combination of opening more vacancies and increasing participation. If they are set optimally, output could be about 15 % higher. A positive modest binding minimum wage or UI benefits conditional on applying at least once, increases participation, decreases rent seeking and decreases entry. The total welfare effects of those instruments are positive as long as they are set not too high.

It is well known that in economies with search frictions high and low productivity firms can coexist. In this paper we are interested in whether workers select their portfolios of applications to different firm types in a socially desirable way. Specifically, we study a search model where workers can apply to high and or low productivity firms. Firms that compete for the same candidate can increase their wage offers as often as they like. We show that if workers apply to two jobs, there is a unique symmetric equilibrium where workers mix between sending both applications to the high and sending both to the low productivity sector. But, efficiency requires that they apply to both sectors because a higher matching rate in the high-productivity sector can then be realized with fewer applications (and consequently fewer coordination frictions) if workers always accept the offer of the most productive sector. However, in the market the worker’s payoff is determined by how much the firm with the second highest productivity is willing to bid. This is what prevents them from applying to both sectors. For many configurations, the equilibrium outcomes are the same under directed and random search. Allowing for free entry creates a second source of inefficiency. We discuss the effects of increasing the number of applications and show that our results can easily be generalized to N-firms.

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We consider a decentralized college admissions problem with uncertainty. We assume that a continuum of heterogeneous students apply to two colleges. College application choices are nontrivial because they are costly and their evaluations are noisy. Colleges set admissions standards for signals of student caliber. We develop the supply and demand framework where admissions standards act like prices that allocate scarce slots to students. We explore comparative statics in the game between colleges, and find that the better college is affected by the lesser college’s admissions standard in this decentralized world. Our analysis is complicated by the students ’ application portfolio shifts. Noisy applications not only distorts outcomes, but even strategies: We find that the best students apply to the best college, and the best college sets higher standards only when the colleges differ sufficiently in quality, and the lesser school is not too small. Applying the model, we find that racial affirmative action at the better col-lege is optimally met by a discriminatory admissions policy at the weaker school; and that binding early admissions programs are more effective than non-binding programs when a college competes with a rival that does not use early admissions. ∗An earlier version was called “The College Admissions Problem with Uncertainty. ” Lones is grateful