The Employed, the Unemployed, and the Unemployable: Directed Search with Worker Heterogeneity

Suren Basov, Ian King and Lawrence Uren

No 2010.03, Working Papers from School of Economics, La Trobe University

Abstract: We examine the implications of worker heterogeneity on the equilibrium matching process, using a directed search model. Worker abilities are selected from a general distribution, subject to some weak regularity requirements, and the firms direct their job offers to workers. We identify conditions under which some fraction of the workforce will be "unemployable": no firm will approach them even though they offer positive surplus. For large markets we derive a simple closed form expression for the equilibrium matching function. This function has constant returns to scale and two new terms, which are functions of the underlying distribution of worker productivities: the percentage of unemployable workers, and a measure of heterogeneity (κ).The equilibrium unemployment rate is increasing in κ and, under certain circumstances, is increasing in the productivity of highly skilled workers, despite endogenous entry. A key empirical prediction of the theory is that κ ≥ 1. We examine this prediction, using data from several countries.

Keywords: Directed search; worker heterogeneity; unemployment. EDIRC Provider-Institution: RePEc:edi:smlatau (search for similar items in EconPapers)
JEL-codes: C78 J41 J64 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2010-03
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Related works:
Working Paper: The Employed, the Unemployed, and the Unemployable: Directed Search with Worker Heterogeneity (2011)
Working Paper: The Employed, the Unemployed, and the Unemployable: Directed Search with Worker Heterogeneity (2010)
Working Paper: The Employed, the Unemployed, and the Unemployable: Directed Search with Worker Heterogeneity (2010)
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