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Mismatch as choice

Yu (Sonja) Chen, Matthew Doyle () and Francisco Gonzalez ()
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Yu (Sonja) Chen: University of Calgary

No 2017-04, Working Papers from Department of Economics, University of Calgary

Abstract: We characterize a competitive search equilibrium in which firms in some markets create jobs that workers seek even though those jobs do not make the most productive use of workers' skills. We refer to markets in which workers purposefully search for and accept inferior jobs as exhibiting directed mismatch. This kind of misallocation is driven by the fact that incomplete information about workers' outside options implies that the value of on-the-job search is higher for workers employed in those inferior jobs. Our theory provides new insights into the returns to education as well as the impact of on-the-job search on labor market mismatch. It also suggests that the declining fortunes of college educated American workers in recent decades, like those of high school graduates, are linked to the automation and o¤shoring of routine-task based jobs.

Keywords: directed search; information; adverse selection; mismatch (search for similar items in EconPapers)
JEL-codes: C78 D8 E24 (search for similar items in EconPapers)
Date: 2017-05-15
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