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Efficiency in a matching model with heterogeneous agents: too many good or bad jobs?

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Abstract
This paper analyzes the efficiency of the equilibrium allocation in a matching model with two types of workers and jobs. The technology is such that high-skill workers can perform all jobs, while low-skill workers can only perform unskilled jobs. In this setup two types equilibria may occur. A cross-skill matching equilibrium in which high-skill workers accept all jobs and an ex-post segmentation equilibrium in which they accept only skilled jobs. Our first result shows that the equilibrium with ex-post bargaining is never efficient. Second, under Hosios'(1990) condition we show that low-skill workers are overvalued, while the opposite holds for high-skill workers. In equilibrium, firms therefore create too few unskilled jobs and too many skilled jobs. In addition, high-skill workers may decide to accept unskilled jobs while the efficient allocation features ex-post segmentation. Finally, in an extension we show that efficiency can be restored through taxation and we analyze how workers bargaining strength affects unemployment and the degree of skill-mismatch.

Suggested Citation

  • Blázquez, Maite, 2003. "Efficiency in a matching model with heterogeneous agents: too many good or bad jobs?," UC3M Working papers. Economics we035019, Universidad Carlos III de Madrid. Departamento de Economía.
    • Handle: RePEc:cte:werepe:we035019
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    1. Juan J. Dolado & Marcel Jansen & Juan F. Jimeno, "undated". "A Matching Model of Crowding-Out and On-the-Job Search (with an application to Spain)," Working Papers 2002-16, FEDEA.
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    8. Shimer Robert & Smith Lones, 2001. "Matching, Search, and Heterogeneity," The B.E. Journal of Macroeconomics, De Gruyter, vol. 1(1), pages 1-18, April.
    9. Acemoglu, Daron & Shimer, Robert, 1999. "Holdups and Efficiency with Search Frictions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 827-849, November.
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    Cited by:

    1. Blázquez, Maite & Jansen, Marcel, 2008. "Search, mismatch and unemployment," European Economic Review, Elsevier, vol. 52(3), pages 498-526, April.
    2. repec:aia:aiaswp:wp37 is not listed on IDEAS
    3. Batyra, Anna & Sneessens, Henri R., 2010. "Selective reductions in labor taxation: Labor market adjustments and macroeconomic performance," Journal of Policy Modeling, Elsevier, vol. 32(4), pages 531-543, July.
    4. Olivier Pierrard & Henri Sneessens, 2004. "Biased Technological Shocks, Wage Rigidities and Low-Skilled Unemployment," DNB Working Papers 020, Netherlands Central Bank, Research Department.

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    More about this item

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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