Investing in Skill and Searching for Coworkers: Endogenous Participation in a Matching Market

Chris Bidner, Guillaume Roger and Jessica Moses

American Economic Journal: Microeconomics, 2016, vol. 8, issue 1, 166-202

Abstract: We demonstrate how search frictions have important yet subtle implications for participation in a skilled labor market by studying a model in which agents invest in skill prior to searching for coworkers. Search frictions induce the existence of acceptance-constrained equilibria, whereby matching concerns—as opposed to investment costs—dissuade the marginal agent from investing and participating in the skilled matching market. Such equilibria are robust, relevant, and have comparative static properties that contrast sharply with the intuitive properties arising in a benchmark static setting. We consider an extension with separate matching "marketplaces," and show that our main results continue to hold. (JEL C78, D83, J24)

JEL-codes: C78 D83 J24 (search for similar items in EconPapers)
Date: 2016
Note: DOI: 10.1257/mic.20140110
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