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Partially Directed Search in the Labor Market

Liangjie Wu

No 2117, EIEF Working Papers Series from Einaudi Institute for Economics and Finance (EIEF)

Abstract: I study the labor market implications of limited information inherent in the job search process. Workers pay a cost to direct job search that is proportional to the divergence between the chosen search strategy and a benchmark random search strategy. With this cost, workers apply to every job with a positive probability, but apply to high-payoff jobs with higher probabilities. In a wage posting model with partially directed search, employers have monopsony power: firms extract a markdown due to the cost of directing search. Efficiency of the market equilibrium depends on whether the markdowns are equally distributed across firms. Inefficiency arises when search cost is intermediate, which has new implications on policy remedies to monopsony.

Pages: 105 pages
Date: 2021, Revised 2021-12
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