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Economic Theory

, Volume 67, Issue 4, pp 817–851 | Cite as

Job search under asymmetric information: endogenous wage dispersion and unemployment stigma

  • Shuaizhang Feng
  • Lars Lefgren
  • Brennan C. PlattEmail author
  • Bingyong Zheng
Research Article
  • 242 Downloads

Abstract

We present a model of directed job search with asymmetric information regarding worker type. While job applicants know their productivity type, firms can only observe the duration of unemployment as well as a noisy signal of worker type. Firms can offer an unscreened wage or a wage that is conditioned on passing the screening and the duration of unemployment. This framework leads to three possible equilibria which depend on model parameter values. We describe the circumstances under which each equilibrium may result and the empirical implications of each equilibrium. Our model sheds light into wage scarring, unemployment duration, wage dispersion and firm-wage sorting, as well as the effects of unemployment insurance and minimum wages on search behavior and the distribution of wages.

Keywords

Wage dispersion Directed search Unemployment stigma Wage scarring 

JEL Classification

D82 D83 J31 

Notes

Acknowledgements

We thank two anonymous referees for comments. Feng’s research is supported by the Chinese National Science Foundation for Distinguished Young Scholars (Project No. 71425005), the Program for Innovative Research Team of Shanghai University of Finance and Economics (Project No. 2014110310), and the Chang Jiang Scholars Program (Project No. T2012069). Zheng also thanks the Chinese National Science Foundation for support (Project No. 71573168).

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Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2018

Authors and Affiliations

  • Shuaizhang Feng
    • 1
  • Lars Lefgren
    • 2
  • Brennan C. Platt
    • 2
    Email author
  • Bingyong Zheng
    • 3
  1. 1.Institute for Economic and Social ResearchJinan UniversityGuangzhouChina
  2. 2.Department of EconomicsBrigham Young UniversityProvoUSA
  3. 3.School of EconomicsShanghai University of Finance and EconomicsShanghaiChina

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