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Competitive on-the-job search

Garibaldi, Pietro; Moen, Espen R.; Sommervoll, Dag Einar
Journal article, Peer reviewed
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URI
http://hdl.handle.net/11250/2389061
Date
2016
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Original version
Review of Economic Dynamics, 19(2016)19: 88-107   http://dx.doi.org/10.1016/j.red.2015.10.001
Abstract
The paper proposes a model of on-the-job search and industry dynamics in which search

is directed. Firms permanently di er in productivity levels, their production function features

constant returns to scale, and search costs are convex in search intensity. Wages are determined

in a competitive manner, as rms advertise wage contracts (expected discounted incomes) so

as to balance wage costs and search costs (queue length). Firms are assumed to sort out their

coordination problems with their employees in such a way that the on-the-job search behavior of

workers maximizes the match surplus. Our model has several novel features. First, it is close in

spirit to the competitive model, with a tractable and unique equilibrium, and is therefore useful

for empirical testing. Second, on-the-job search is an e cient response to rm heterogeneities

and convex search costs. Third, the equilibrium leans towards a job ladder, where unemployed

workers apply to low-productivity rms o ering low wages, and then gradually move on to more

productive, higher-paying rms. With a continuum of rm types, the job ladder i strict, in the

sense that there is a one-to-one correspondence between the productivity of the current employer

and that of the rms she searches for. The paper also contributes methodologically, as the

existence proof requires a version of Schauder's xed point theorem that is not commonly used

by economists. Finally, our model o ers di erent implications for the dynamics of job-to-job

transitions than existing models of random search.
Description
This is the accepted and refereed manuscript to the article
Publisher
Elsevier
Journal
Review of Economic Dynamics

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