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The Allocation of Labor and Endogenous Search Decisions
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Lawrence Uren
Published/Copyright:
June 26, 2006
Abstract
This paper examines the allocation of heterogeneous workers across sectors of an economy in which workers are able to direct their search towards particular firms. We find that search frictions, in addition to causing unemployment, may result in an inefficient allocation of labor. This result arises because of the interaction between the investment decisions of firms and the search decisions of workers. Despite constant returns to scale in both the matching and production functions, this interaction can generate multiple equilibria. The existence of multiple equilibria is shown to depend crucially on the direction of comparative advantage.
Published Online: 2006-06-26
©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
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