Coordination Frictions and Job Heterogeneity

Abstract

We develop a competing auction model of a labor market with a continuum of heterogeneous workers and firms. We estimate this model and compare it to closely related models of price posting using Danish data on wages and productivities. Assuming heterogeneous workers with no comparative advantage, we find that each model gives a reasonable approximation of the statistical moments of both the wage and productivity distribution. A sensitivity analysis then draws out further implications of the theory. We explain how the feasible matchings between workers and firms changes as the worker moves up the job ladder, how the identification of assortative matching is fundamentally different in directed and undirected search models, how our theory accounts for business cycle facts related to inter-temporal changes in job offer distributions, and how our model could also be used to identify the contributions of specific versus general human capital.

Keywords: Directed Search, Competing auctions, Wage Posting, On-the-Job Search, Comparative Advantage, Assortative Matching, Business Cycles, Human Capital

JEL Classification: J64, J63, E32