Bilateral Search as an Explanation for Labor Market Segmentation and Other Anomalies

35 Pages Posted: 28 Dec 2006 Last revised: 13 Sep 2010

See all articles by Kevin Lang

Kevin Lang

Boston University - Department of Economics; National Bureau of Economic Research (NBER)

William T. Dickens

Northeastern University - Department of Economics; Federal Reserve Banks - Federal Reserve Bank of Boston; Brookings Institution

Date Written: September 1993

Abstract

Since applying for jobs is costly, workers prefer applying where their employment probability is high and, therefore, to jobs attracting fewer higher quality applicants. Since creating vacancies is expensive, firms create more vacancies when job-seeking is high. Our model captures these ideas and accounts for worker heterogeneity by assuming three types of nearly identical workers. These infinitesimal quality differences generate a discrete wage distribution. For some parameter values lower quality workers have discretely lower wages and higher unemployment than better workers. Moreover, increasing the number of the lowest quality workers can make all workers better off.

Suggested Citation

Lang, Kevin and Dickens, William T., Bilateral Search as an Explanation for Labor Market Segmentation and Other Anomalies (September 1993). NBER Working Paper No. w4461, Available at SSRN: https://ssrn.com/abstract=420301

Kevin Lang (Contact Author)

Boston University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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William T. Dickens

Northeastern University - Department of Economics ( email )

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Federal Reserve Banks - Federal Reserve Bank of Boston ( email )

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Brookings Institution ( email )

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