Working Paper: CEPR ID: DP6169
Authors: Pieter A. Gautier; Ronald Wolthoff
Abstract: We study a search model where workers can apply to high and or low productivity firms. Firms that compete for the same candidate can increase their wage offers as often as they like. We show that if workers apply to two jobs, there is a unique symmetric equilibrium where workers mix between sending both applications to the high and sending both to the low productivity sector. But, efficiency requires that they apply to both sectors because a higher matching rate in the high-productivity sector can then be realized with fewer applications (and consequently fewer coordination frictions) if workers always accept the offer of the most productive sector. However, in the market the worker's payoff is determined by how much the firm with the second highest productivity is willing to bid. This is what prevents them from applying to both sectors. For many configurations, the equilibrium outcomes are the same under directed and random search. Allowing for free entry creates a second source of inefficiency. We discuss the effects of increasing the number of applications and show that our results can easily be generalized to N-firms.
Keywords: simultaneous search; directed search; efficiency; heterogeneous firms
JEL Codes: D83; E24; J23; J24; J64
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Coordination frictions (F12) | inefficiencies in the allocation of workers (J29) |
| Workers applying to both high and low productivity firms (J29) | matching rate in the high productivity sector (J24) |
| Competition among firms (L13) | expected payoffs for workers who apply to both sectors (J39) |
| Presence of ex post competition (L13) | inefficiencies in equilibrium outcomes (D59) |
| Decentralized market (D49) | excessive unemployment (J64) |
| Optimal allocation of workers breaks down (J29) | inefficiencies in the labor market (J49) |