Working Paper: CEPR ID: DP3471
Authors: Espen Moen
Abstract: In this article, I study the effect of worker heterogeneities on wages and unemployment within the context of a directed search model. A worker's productivity in a given firm depends both on their type and on a worker-firm specific component. Firms advertise unconditional wage offers, and hire the most productive workers that show up. The resulting equilibrium is inefficient, as the wage premium paid to high-type workers is too high, and the number of high-type jobs too low compared to the output-maximizing solution. This reduces the welfare of high-type workers. My findings contrast with the findings in the literature on labour market segmentation, where the argument is that the existence of high-type workers forces down wages to low-type workers and thus reduces the welfare of this group.
Keywords: Directed Search; Heterogeneous Workers; Labour Market Segmentation; Unemployment; Wage Differentials
JEL Codes: D30; D50; J31; J64
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| low-type workers (J89) | welfare of high-type workers (I31) |
| binding minimum wage (J38) | welfare of low-type workers (J89) |
| binding minimum wage (J38) | welfare of high-type workers (I31) |
| tax on income exceeding low-type wages (H29) | overall output (E23) |
| low-type workers (J89) | high-type jobs (J62) |
| high-type jobs (J62) | welfare of high-type workers (I31) |