Do Good Workers Hurt Bad Workers - or is it the Other Way Around?

Espen R. Moen

No 3471, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: In this article, I study the effect of worker heterogeneities on wages and unemployment within the context of a directed search model. A worker's productivity in a given firm depends both on their type and on a worker-firm specific component. Firms advertise unconditional wage offers, and hire the most productive workers that show up. The resulting equilibrium is inefficient, as the wage premium paid to high-type workers is too high, and the number of high-type jobs too low compared to the output-maximizing solution. This reduces the welfare of high-type workers. My findings contrast with the findings in the literature on labour market segmentation, where the argument is that the existence of high-type workers forces down wages to low-type workers and thus reduces the welfare of this group.

Keywords: directed search; heterogeneous workers; labour market segmentation; unemployment; wage differentials (search for similar items in EconPapers)
JEL-codes: D30 D50 J31 J64 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-lab
Date: 2002-07
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