Citation

Discussion Paper Details

Please find the details for DP9981 in an easy to copy and paste format below:

Full Details

Title: Heterogeneity, Selection and Labor Market Disparities

Author(s): Alessandra Bonfiglioli and Gino Gancia

Publication Date: May 2014

Keyword(s): Beliefs, Effort, Firm Heterogeneity, Multiple Equilibria, Selection, Sorting, Unemployment and Wage Inequality

Programme Area(s): International Macroeconomics

Abstract: We study the incentives to improve ability in a model where heterogeneous firms and workers interact in a labor market characterized by matching frictions and costly screening. When effort in improving ability raises both the mean and the variance of the resulting ability distribution, multiple equilibria may arise. In the high-effort equilibrium, heterogeneity in ability is sufficiently large to induce firms to select the best workers, thereby confirming the belief that effort is important for finding good jobs. In the low-effort equilibrium, ability is not sufficiently dispersed to justify screening, thereby confirming the belief that effort is not so important. The model has implications for wage inequality, the distribution of firm characteristics, sorting patterns between firms and workers, and unemployment rates that can help explaining observed cross-country variation in socio-economic and labor market outcomes.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=9981

Bibliographic Reference

Bonfiglioli, A and Gancia, G. 2014. 'Heterogeneity, Selection and Labor Market Disparities'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=9981