Efficiency in a matching model with heterogeneous agents: too many good or bad jobs?

Maite Blázquez Cuesta
Authors registered in the RePEc Author Service: Marcel Jansen

UC3M Working papers. Economics from Universidad Carlos III de Madrid. Departamento de Economía

Abstract: This paper analyzes the efficiency of the equilibrium allocation in a matching model with two types of workers and jobs. The technology is such that high-skill workers can perform all jobs, while low-skill workers can only perform unskilled jobs. In this setup two types equilibria may occur. A cross-skill matching equilibrium in which high-skill workers accept all jobs and an ex-post segmentation equilibrium in which they accept only skilled jobs. Our first result shows that the equilibrium with ex-post bargaining is never efficient. Second, under Hosios'(1990) condition we show that low-skill workers are overvalued, while the opposite holds for high-skill workers. In equilibrium, firms therefore create too few unskilled jobs and too many skilled jobs. In addition, high-skill workers may decide to accept unskilled jobs while the efficient allocation features ex-post segmentation. Finally, in an extension we show that efficiency can be restored through taxation and we analyze how workers bargaining strength affects unemployment and the degree of skill-mismatch.

Date: 2003-10
New Economics Papers: this item is included in nep-lab
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Citations: View citations in EconPapers (7)

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Working Paper: Efficiency in a Matching Model with Heterogeneous Agents: Too Many Good or Bad Jobs? (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:cte:werepe:we035019

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