Working Paper: CEPR ID: DP2141
Authors: Jonathan Hamilton; Jacques-François Thisse; Yves Zenou
Abstract: We study imperfect competition in the labor market when worker skills are continuously distributed within the population and a finite number of firms have different job requirements. The cost of training a worker depends on the difference between this worker's skill and the employer's needs. When firms cannot identify worker training costs in advance, firms pay workers equal wages, but workers absorb training costs. When firms can identify worker types before employment, firms can pay different net wages to workers with different training costs. Voters select the level of general education which is financed by a lump-sum tax. Workers are on average better off when firms can observe workers' skill for a given level of human capital, but the median voter prefers a higher level of general human capital when firms cannot observe worker types.
Keywords: wage competition; job assignment; information structure; median voter
JEL Codes: J41; I22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Asymmetric Information (D82) | Wage Dispersion (J31) |
| Asymmetric Information (D82) | Average Net Wage of Workers (J31) |
| Full Information (D83) | Wage Dispersion (J31) |
| Full Information (D83) | Average Net Wage of Workers (J31) |
| Asymmetric Information (D82) | Training Costs (J30) |
| Wage Dispersion (J31) | Worker Job Matches (J29) |
| Average Net Wage of Workers (J31) | Worker Job Matches (J29) |
| Median Voter's Human Capital (J24) | General Human Capital Investment (J24) |
| Asymmetric Information (D82) | Median Voter's Human Capital (J24) |