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Selective Hiring and Welfare Analysis in Labor Market Models

29 Pages Posted: 4 Feb 2012  

Christian Merkl

Kiel Institute for the World Economy; University of Kiel; IZA Institute of Labor Economics

Thijs van Rens

University of Warwick - Department of Economics; CEPR; Institute for the Study of Labor (IZA)

Abstract

Firms select not only how many, but also which workers to hire. Yet, in standard search models of the labor market, all workers have the same probability of being hired. We argue that selective hiring crucially affects welfare analysis. Our model is isomorphic to a search model under random hiring but allows for selective hiring. With selective hiring, the positive predictions of the model change very little, but the welfare costs of unemployment are much larger because unemployment risk is distributed unequally across workers. As a result, optimal unemployment insurance may be higher and welfare is lower if hiring is selective.

Keywords: labor market models, welfare, optimal unemployment insurance

JEL Classification: E24, J65

Suggested Citation

Merkl, Christian and van Rens, Thijs, Selective Hiring and Welfare Analysis in Labor Market Models. IZA Discussion Paper No. 6294. Available at SSRN: https://ssrn.com/abstract=1999322

Christian Merkl (Contact Author)

Kiel Institute for the World Economy ( email )

P.O. Box 4309
Kiel, D-24100
Germany

University of Kiel ( email )

Olshausenstr. 40
D-24118 Kiel, Schleswig-Holstein 24118
Germany

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Thijs Van Rens

University of Warwick - Department of Economics ( email )

Coventry CV4 7AL
United Kingdom

HOME PAGE: http://www.thijsvanrens.com

CEPR ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

HOME PAGE: http://www.cepr.org/researchers/details/rschcontact.asp?IDENT=158946

Institute for the Study of Labor (IZA) ( email )

P.O. Box 7240
Bonn, D-53072
Germany

HOME PAGE: http://www.iza.org/profile?key=3806

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