Working Paper: CEPR ID: DP8522
Authors: Pieter A. Gautier; Christian Holzner
Abstract: When workers send applications to vacancies they create a network. Frictions arise if workers do not know where other workers apply to (this affects network creation) and firms do not know which candidates other firms consider (this affects network clearing). We show that those frictions and the wage mechanism are in general not independent. Equilibria that exhibit wage dispersion are inefficient in terms of network formation. Under complete recall (firms can go back and forth between all their candidates) only wage mechanisms that allow for ex post Bertrand competition generate the maximum matching on a realized network.
Keywords: efficiency; network clearing; random bipartite network formation; simultaneous search
JEL Codes: D83; D85; E24; J64
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| type of wage mechanism employed (J33) | efficiency of network formation and matching (D85) |
| absence of efficient wage mechanisms (J46) | suboptimal matching outcomes (C78) |
| wage mechanisms (J33) | network dynamics in labor markets (J69) |