Decentralized Market Processes to Stable Job Matchings with Competitive Salaries

Bo Chen (), Satoru Fujishige and Zaifu Yang
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Satoru Fujishige: Research Institute for Mathematical Sciences, Kyoto University

No 749, KIER Working Papers from Kyoto University, Institute of Economic Research

Abstract: We analyze a decentralized trading process in a basic labor market where heterogeneous firms and workers meet directly and randomly, and negotiate salaries with each other over time. Firms and workers may not have a complete picture of the entire market and can thus behave myopically in the process. Our main result establishes that, starting from an arbitrary initial market state, there exists a finite sequence of successive myopic (firm-worker) pair improvements, or bilateral trades, leading to a stable matching between firms and workers with a scheme of competitive salary offers. An important implication of this result is that a general random process where every possible bilateral trade is chosen with a positive probability converges with probability one to a competitive equilibrium of the market.

Keywords: Decentralized market; job matching; random path; competitive salary; stability. (search for similar items in EconPapers)
JEL-codes: C62 D72 (search for similar items in EconPapers)
Pages: 28pages
Date: 2010-12
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: Decentralized Market Processes to Stable Job Matchings with Competitive Salaries (2011)
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