Working Paper: NBER ID: w3387
Authors: Olivier Jean Blanchard; Peter Diamond
Abstract: Firms often receive multiple acceptable applications for vacancies, requiring a choice among candidates. This paper contrasts equilibria when firms select workers at random and when firms select the worker with the shortest spell of unemployment, called ranking. With the filling of vacancies unaffected by the selection rule, both equilibria have the same aggregate dynamics, but different distributions of unemployment durations. With the threat point for the Nash bargained wage being a worker with zero unemployment duration, the wage with ranking is much more sensitive to changes in the tightness of the labor market. The same holds for efficiency wages.
Keywords: unemployment; wages; labor market; ranking; matching
JEL Codes: J64; J31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| unemployment duration (J64) | exit rate from unemployment (J65) |
| unemployment rate (J64) | exit rate from unemployment (J65) |
| unemployment duration (J64) | wage determination (J31) |
| distribution of prospective unemployment durations (J64) | wages (J31) |
| labor market tightness (J20) | wages (J31) |