Cherry-Picking in Labor Market with Imperfect Information

Shuaizhang Feng and Bingyong Zheng

No 4309, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We study a competitive labor market with imperfect information. In our basic model, the labor market consists of heterogeneous workers and ex ante identical firms who have only imperfect private information about workers' productivities. Firms compete by posting wages in order to cherry-pick more productive workers from the applicant pool. The model predicts many important empirical regularities, including non-degenerated firm size distribution, persistent wage dispersion, and employer size-wage premium. We also consider extensions of the model where firms differ in either productivity or information about worker types, both generating assortative matching with a positive but imperfect correlation of worker and firm types. The main insight of this paper is that identical workers can get different wages depending on productivities of their coworkers in a competitive market with informational frictions. Our model also sheds light on inter-industry wage differential and sorting between industry and worker characteristics.

Keywords: imperfect information; cherry-picking; wage dispersion; size-wage premium; inter-industry wage differential (search for similar items in EconPapers)
JEL-codes: D83 J31 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2009-07
New Economics Papers: this item is included in nep-bec, nep-cta, nep-lab and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://docs.iza.org/dp4309.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:iza:izadps:dp4309

Ordering information: This working paper can be ordered from
IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany

Access Statistics for this paper

More papers in IZA Discussion Papers from Institute of Labor Economics (IZA) IZA, P.O. Box 7240, D-53072 Bonn, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Holger Hinte ().