Ranking, Unemployment Duration, and Wages

61 Pages Posted: 26 Jul 2001 Last revised: 9 Jan 2002

See all articles by Olivier J. Blanchard

Olivier J. Blanchard

National Bureau of Economic Research (NBER); Peter G. Peterson Institute for International Economics

Peter A. Diamond

Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute)

Date Written: June 1990

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.

Suggested Citation

Blanchard, Olivier J. and Diamond, Peter A., Ranking, Unemployment Duration, and Wages (June 1990). NBER Working Paper No. w3387. Available at SSRN: https://ssrn.com/abstract=278029

Olivier J. Blanchard (Contact Author)

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Peter G. Peterson Institute for International Economics ( email )

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Peter A. Diamond

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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National Bureau of Economic Research (NBER) ( email )

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617-253-3363 (Phone)
617-253-7804 (Fax)

CESifo (Center for Economic Studies and Ifo Institute) ( email )

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