Selective Hiring and Welfare Analysis in Labor Market Models

Thijs van Rens and Christian Merkl

No 13272, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Firms select not only how many, but also which workers to hire. Yet, in most labor market models all workers have the same probability of being hired. We argue that selective hiring crucially affects welfare analysis. We set up a model that is isomorphic to a search model under random hiring but allows for selective hiring. With selective hiring, the positive predictions of the model change very little, but implications for welfare are different for two reasons. First, a hiring externality occurs with random but not with selective hiring. Second, the welfare costs of unemployment are much larger with selective hiring, because unemployment risk is distributed unequally across workers.

Keywords: Labor market models; Welfare; Optimal unemployment insurance (search for similar items in EconPapers)
JEL-codes: E24 J65 (search for similar items in EconPapers)
Date: 2018-10
New Economics Papers: this item is included in nep-dge, nep-lab and nep-mac
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Related works:
Journal Article: Selective hiring and welfare analysis in labor market models (2019)
Working Paper: Selective Hiring and Welfare Analysis in Labor Market Models (2015)
Working Paper: Selective Hiring and Welfare Analysis in Labor Market Models (2012)
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