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Efficiency in a Matching Model with Heterogeneous Agents: Too Many Good or Bad Jobs?

48 Pages Posted: 13 Jan 2004  

Maite Blázquez

Universidad Carlos III de Madrid

Marcel Jansen

Universidad Carlos III de Madrid - Department of Economics; IZA Institute of Labor Economics

Date Written: December 2003

Abstract

This paper analyses the efficiency of the equilibrium allocation in a matching model with two types of workers and jobs. The basic assumption is that high-skill workers can perform both skilled and unskilled jobs, while low-skill workers can only perform unskilled jobs. Our first result shows that the equilibrium with ex-post bargaining is never efficient. Second, under Hosios' (1990) condition we show that high-skill workers are under-valued in equilibrium, while the opposite holds for low-skill workers. Firms therefore tend to create too few unskilled jobs, resulting in a suboptimally high unemployment rate for low-skill workers. We show that these results generalize to environments with more types of agents and different production technologies. Finally, in an extension we derive a tax scheme that restores efficiency and we show how workers' bargaining strength affects unemployment and skill-mismatch.

Keywords: matching, ex post bargaining, heterogeneity, efficiency

JEL Classification: C78, D61, J64

Suggested Citation

Blázquez, Maite and Jansen, Marcel, Efficiency in a Matching Model with Heterogeneous Agents: Too Many Good or Bad Jobs? (December 2003). IZA Discussion Paper No. 968. Available at SSRN: https://ssrn.com/abstract=487362

Maite Blázquez

Universidad Carlos III de Madrid ( email )

E-28903 Getafe (Madrid)
Spain

Marcel Jansen (Contact Author)

Universidad Carlos III de Madrid - Department of Economics ( email )

Calle Madrid 126
Getafe, 28903
Spain
+34 91 624 5740 (Phone)
+34 91 624 9875 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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