Discussion Paper Details

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Title: Wage Competition with Heterogeneous Workers and Firms

Author(s): Jonathan Hamilton, Jacques-François Thisse and Yves Zenou

Publication Date: May 1999

Keyword(s): Information Structure, Job Assignment, Median Voter and Wage Competition

Programme Area(s): Labour Economics

Abstract: We study imperfect competition in the labor market when worker skills are continuously distributed within the population and a finite number of firms have different job requirements. The cost of training a worker depends on the difference between this worker's skill and the employer's needs. When firms cannot identify worker training costs in advance, firms pay workers equal wages, but workers absorb training costs. When firms can identify worker types before employment, firms can pay different net wages to workers with different training costs. Voters select the level of general education which is financed by a lump-sum tax. Workers are on average better off when firms can observe workers' skill for a given level of human capital, but the median voter prefers a higher level of general human capital when firms cannot observe worker types.

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Bibliographic Reference

Hamilton, J, Thisse, J and Zenou, Y. 1999. 'Wage Competition with Heterogeneous Workers and Firms'. London, Centre for Economic Policy Research.