Self-Enforced Job Matching

Abstract

Complementarities and peer effects are common in matching markets, yet incorporating them often leads to the nonexistence of stable matchings. We observe that matching is often an ongoing process rather than a static allocation, where long-lived firms interact over time with short-lived workers. We demonstrate that when wages are flexible and firms are sufficiently patient, a dynamically stable solution always exists in many-to-one matching markets---even with complementarities and peer effects. Flexible wages are crucial to our result, as they not only facilitate surplus extraction when firms cooperate in no-poaching agreements but also enhance the threat of punishment through bidding wars.

Keywords: matching, repeated games, no-poaching agreements JEL: C73

JEL Classification: C73