Working Paper: CEPR ID: DP5575
Authors: Pieter A. Gautier; Coen N. Teulings; Aico Van Vuuren
Abstract: We characterize the equilibrium of a search model with a continuum of job and worker types, wage bargaining, free entry of vacancies and on-the-job search. The decentralized economy with monopsonistic wage setting yields too many vacancies and hence too low unemployment compared to first best. This is due to a business- stealing externality. Raising workers? bargaining power resolves this inefficiency. Unemployment benefits are a second best alternative to this policy. We establish simple relations between the losses in production due to search frictions and wage differentials on the one hand and unemployment on the other hand. Both can be used for empirical testing.
Keywords: on-the-job search; sorting; labour economics
JEL Codes: J64
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| on-the-job search (J68) | labor market outcomes (J48) |
| on-the-job search (J68) | wage differentials (J31) |
| on-the-job search (J68) | unemployment (J64) |
| bargaining power (C79) | unemployment (J64) |
| unemployment benefits (J65) | bargaining power (C79) |
| search frictions (F12) | wage differentials (J31) |
| search frictions (F12) | unemployment (J64) |