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Heterogeneity, Selection and Labor Market Disparities

Alessandra Bonfiglioli () and Gino Gancia ()

No 9981, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We study the incentives to improve ability in a model where heterogeneous firms and workers interact in a labor market characterized by matching frictions and costly screening. When effort in improving ability raises both the mean and the variance of the resulting ability distribution, multiple equilibria may arise. In the high-effort equilibrium, heterogeneity in ability is sufficiently large to induce firms to select the best workers, thereby confirming the belief that effort is important for finding good jobs. In the low-effort equilibrium, ability is not sufficiently dispersed to justify screening, thereby confirming the belief that effort is not so important. The model has implications for wage inequality, the distribution of firm characteristics, sorting patterns between firms and workers, and unemployment rates that can help explaining observed cross-country variation in socio-economic and labor market outcomes.

Keywords: Beliefs; Effort; Firm Heterogeneity; Multiple Equilibria; Selection; Sorting; Unemployment; Wage Inequality (search for similar items in EconPapers)
JEL-codes: E24 J24 J64 (search for similar items in EconPapers)
Date: 2014-05
New Economics Papers: this item is included in nep-bec, nep-hrm and nep-mac
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Related works:
Journal Article: Heterogeneity, selection and labor market disparities (2019) Downloads
Working Paper: Heterogeneity, selection and labor market disparities (2018) Downloads
Working Paper: Heterogeneity, Selection and Labor Market Disparities (2015) Downloads
Working Paper: Heterogeneity, Selection and Labor Market Disparities (2014) Downloads
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