Search efficiency, wage dynamics and welfare
Sahin Avcioglu and
Bilgehan Karabay ()
Economic Modelling, 2019, vol. 83, issue C, 270-286
Advances in information technology have improved the job-search process in the labor market. We analyze the effects of this improvement by constructing a search-and-matching model with two sectors: a risky sector with firm-specific productivity shocks and a risk-free sector. The risky sector is characterized by a low level of commitment between employers and workers – either party can end the employment relationship. We show that a better job-search process generates more job matches in the risky sector, and this benefits workers by improving their outside options. The effect on employers is subtle: while it is easier to fill vacancies, workers become more expensive. At the same time, the ease of finding new workers makes it harder for employers to keep their wage promises to workers and increases wage volatility. Our paper contributes to the literature by offering a novel explanation for the observed rise in wage volatility.
Keywords: Search efficiency; Self-enforcing contracts; Wage volatility (search for similar items in EconPapers)
JEL-codes: E24 J31 J63 J64 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:83:y:2019:i:c:p:270-286
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