On-the-Job Search, Mismatch and Efficiency

This paper characterizes the equilibrium for a large class of search models with two-sided heterogeneity and on-the-job search. Besides the well-known congestion externalities, we show that on-the-job search in combination with monopsonistic wage setting without commitment creates a "business-s...

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Bibliographic Details
Published in:The Review of economic studies 2010, Vol.77 (1), p.245-272
Main Authors: GAUTIER, PIETER A, TEULINGS, COEN N, VAN VUUREN, AICO
Format: Article
Language:English
Subjects:
Business structures
Commitments
Economic externalities
Economic models
Economic value
Employment
Equilibrium models
Externalities
Externality
Hiring
Job hunting
Job search
Labour economics
Price premiums
Productivity
Search theory
Strategic behaviour
Studies
Unemployment
Wage determination
Wage theory
Wages
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Summary:This paper characterizes the equilibrium for a large class of search models with two-sided heterogeneity and on-the-job search. Besides the well-known congestion externalities, we show that on-the-job search in combination with monopsonistic wage setting without commitment creates a "business-stealing" externality. In the absence of congestion effects, this leads to excessive vacancy creation. Under wage setting with commitment this externality is absent because when posting a wage, firms take into account the expected productivity of future workers in their current jobs. If firms are able to make and respond to counteroffers, then they will not have to pay no-quit premia and this also leads to excessive vacancy creation.
ISSN:0034-6527
1467-937X
DOI:10.1111/j.1467-937X.2009.00565.x