DP3471 Do Good Workers Hurt Bad Workers - or is it the Other Way Around?
|Author(s):||Espen R Moen|
|Publication Date:||July 2002|
|Keyword(s):||directed search, heterogeneous workers, labour market segmentation, unemployment, wage differentials|
|JEL(s):||D30, D50, J31, J64|
|Programme Areas:||Labour Economics|
|Link to this Page:||www.cepr.org/active/publications/discussion_papers/dp.php?dpno=3471|
In this article, I study the effect of worker heterogeneities on wages and unemployment within the context of a directed search model. A worker's productivity in a given firm depends both on their type and on a worker-firm specific component. Firms advertise unconditional wage offers, and hire the most productive workers that show up. The resulting equilibrium is inefficient, as the wage premium paid to high-type workers is too high, and the number of high-type jobs too low compared to the output-maximizing solution. This reduces the welfare of high-type workers. My findings contrast with the findings in the literature on labour market segmentation, where the argument is that the existence of high-type workers forces down wages to low-type workers and thus reduces the welfare of this group.