Selective hiring and welfare analysis in labor market models

Christian Merkl and Thijs van Rens

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: Firms select not only how many, but also which workers to hire. Yet, in standard search models of the labor market, all workers have the same probability of being hired. We argue that selective hiring crucially affects welfare analysis. Our model is isomorphic to a search model under random hiring but allows for selective hiring. With selective hiring, the positive predictions of the model change very little, but the welfare costs of unemployment are much larger because unemployment risk is distributed unequally across workers. As a result, optimal unemployment insurance may be higher and welfare is lower if hiring is selective.

Keywords: labor market models; welfare; optimal unemployment insurance (search for similar items in EconPapers)
JEL-codes: E24 J65 (search for similar items in EconPapers)
Date: 2011-09, Revised 2012-01
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Citations: View citations in EconPapers (12)

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Working Paper: Selective Hiring and Welfare Analysis in Labor Market Models (2012)
Working Paper: Selective hiring and welfare analysis in labor market models (2012)
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