Gautier, Pieter A.: The Right Man for the Job: Increasing Returns in Search?
World Conference Econometric Society, 2000, Seattle

Pieter A. Gautier, Erasmus University Rotterdam
Coen N. Teulings, Erasmus University Rotterdam
The Right Man for the Job: Increasing Returns in Search?
Session: C-13-13  Wednesday 16 August 2000  by Gautier, Pieter A.
This paper describes a search model with a continuum of worker and job types, transferable utility and an IRS contact technology. We apply a second order Taylor expansion to derive an analytical solution of the equilibrium. We find that one third of the increasing returns in contacts are absorbed by firms and workers being more choosy. Hence, strongly increasing returns in contact rates are consistent with weakly increasing returns in matching. In addition, we derive and decompose the
efficiency loss due to inadequate incentives and show how unemployment benefits can reduce the loss. Finally, we derive a relation between the size of the surplus due to search frictions and the degree of substitutability of worker types at given job complexity levels. Numerical simulations of the model show that our approximations are quite accurate.
Submitted paper full-text in .pdf

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