Decentralized Market Processes to Stable Job Matchings with Competitive Salaries

Bo Chen (), Satoru Fujishige and Zaifu Yang

Discussion Papers from Department of Economics, University of York

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)
Date: 2011-01
New Economics Papers: this item is included in nep-lab
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Citations: View citations in EconPapers (25)

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Working Paper: Decentralized Market Processes to Stable Job Matchings with Competitive Salaries (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:yor:yorken:11/03

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