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An alternative to signaling: directed search and substitution

Levy, Matthew and Szentes, Balázs (2016) An alternative to signaling: directed search and substitution. American Economic Journal: Microeconomics, 8 (4). pp. 1-15. ISSN 1945-7669

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Identification Number: 10.1257/mic.20150116

Abstract

This paper analyzes a labor market, where (i) workers can acquire an observable skill at no cost, (ii) firms differ in unobserved productivity, (iii) workers' skill and firms' productivity are substitutes and (iv) firms' search is directed. The main result is that, if the entry cost of firms is small, no worker acquires the skill in the unique equilibrium. For intermediate entry costs, a positive measure of workers obtain the skill, and the number of skilled workers goes to one as entry costs become large. Welfare is highest when the entry cost is high.

Item Type: Article
Official URL: https://www.aeaweb.org/journals/mic
Additional Information: © 2016 American Economic Association
Divisions: Economics
Subjects: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HD Industries. Land use. Labor
JEL classification: D - Microeconomics > D2 - Production and Organizations > D21 - Firm Behavior
D - Microeconomics > D2 - Production and Organizations > D24 - Production; Cost; Capital and Total Factor Productivity; Capacity
D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information
D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D83 - Search; Learning; Information and Knowledge; Communication; Belief
J - Labor and Demographic Economics > J2 - Time Allocation, Work Behavior, and Employment Determination and Creation; Human Capital; Retirement > J24 - Human Capital; Skills; Occupational Choice; Labor Productivity
Sets: Departments > Economics
Collections > Economists Online
Date Deposited: 15 Apr 2016 12:48
Last Modified: 20 Feb 2019 11:40
URI: http://eprints.lse.ac.uk/id/eprint/66148

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