Competitive On-the-Job Search

43 Pages Posted: 30 Sep 2014

See all articles by Pietro Garibaldi

Pietro Garibaldi

University of Turin - Faculty of Economics

Espen R. Moen

BI Norwegian Business School; Centre for Economic Policy Research (CEPR)

Dag Einar Sommervoll

BI Norwegian Business School - Department of Economics

Date Written: September 2014

Abstract

The paper proposes a model of on-the-job search and industry dynamics in which search is directed. Firms permanently differ in productivity levels, their production function features constant returns to scale, and search costs are convex in search intensity. Wages are determined in a competitive manner, as firms advertise wage contracts (expected discounted incomes) so as to balance wage costs and search costs (queue length). An important assumption is that a firm is able to sort out its coordination problems with their employees in such a way that the on-the-job search behavior of workers maximizes the match surplus. Our model has several novel features. First, it is close in spirit to the competitive model, with a tractable and unique equilibrium, and is therefore useful for empirical testing. Second, the resulting equilibrium gives rise to an efficient allocation of resources. Third, the equilibrium is characterized by a job ladder, where unemployed workers apply to low productivity firms offering low wages, and then gradually move on to more productive, higher-paying firms. Finally, the equilibrium offers different implications for the dynamics of job-to-job transitions than existing models of random search.

Keywords: competitive search equilibrium, directed search, efficiency, firm dynamics

JEL Classification: C62, J60

Suggested Citation

Garibaldi, Pietro and Moen, Espen R. and Sommervoll, Dag Einar, Competitive On-the-Job Search (September 2014). CEPR Discussion Paper No. DP10175. Available at SSRN: https://ssrn.com/abstract=2503405

Pietro Garibaldi (Contact Author)

University of Turin - Faculty of Economics ( email )

Facoltà di Economia
Corso Unione Sovietica 218 bis
Torino, 10134
Italy

Espen R. Moen

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Dag Einar Sommervoll

BI Norwegian Business School - Department of Economics ( email )

Nydalsveien 37
Oslo, 0484
Norway

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