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Efficiency in a Matching Model with Heterogeneous Agents: Too Many Good or Bad Jobs?

Maite Blázquez Cuesta () and Marcel Jansen ()

No 968, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper analyses the efficiency of the equilibrium allocation in a matching model with two types of workers and jobs. The basic assumption is that high-skill workers can perform both skilled and unskilled jobs, while low-skill workers can only perform unskilled jobs. Our first result shows that the equilibrium with ex-post bargaining is never efficient. Second, under Hosios’ (1990) condition we show that high-skill workers are under-valued in equilibrium, while the opposite holds for low-skill workers. Firms therefore tend to create too few unskilled jobs, resulting in a suboptimally high unemployment rate for low-skill workers. We show that these results generalize to environments with more types of agents and different production technologies. Finally, in an extension we derive a tax scheme that restores efficiency and we show how workers’ bargaining strength affects unemployment and skill-mismatch.

Keywords: heterogeneity; ex post bargaining; matching; efficiency (search for similar items in EconPapers)
JEL-codes: C78 D61 J64 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2003-12
New Economics Papers: this item is included in nep-lab and nep-mic
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Citations: View citations in EconPapers (3) Track citations by RSS feed

Published - revised version published as "Search, mismatch and unemployment" in: European Economic Review, 2008, 52 (3), 498-526

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