Optimal policy and the role of social contacts in a search model with heterogeneous workers

Stupnytska Y, Zaharieva A (2013) Working Papers in Economics and Management; 18-2013.
Bielefeld: Bielefeld University, Department of Business Administration and Economics.

Diskussionspapier | Veröffentlicht | Englisch
 
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Abstract / Bemerkung
This paper develops a search model with heterogeneous workers and social networks. High ability workers are more productive and have a larger number of professional contacts. Firms have a choice between a high cost vacancy in the regular labour market and a low cost job opening in the referral market. In this setting the model predicts that a larger number of social contacts is associated with a larger wage gap between high and low ability workers and a larger difference in the equilibrium unemployment rates. Next we demonstrate that the decentralized equilibrium is inefficient for any value of the bargaining power. There are two reasons for the inefficiency. First, the private gain from creating a job in the referral market is always below the social gain, so the equilibrium unemployment of high ability workers is above its optimal value. Moreover, high ability workers congest the market for low ability workers, so the equilibrium wage inequality is inefficiently large. This is in contrast to the result of Blazquez and Jansen (2008) showing that the distribution of wages is compressed in a search model with heterogeneous workers. Finally, we show that a combination of taxes and subsidies can restore the optimal allocation.
Stichworte
social capital; social networks; referrals; wage dispersion; wage compression
Erscheinungsjahr
2013
Serientitel
Working Papers in Economics and Management
Band
18-2013
Seite(n)
24
ISSN
2196-2723
Page URI
https://pub.uni-bielefeld.de/record/2915425

Zitieren

Stupnytska Y, Zaharieva A. Optimal policy and the role of social contacts in a search model with heterogeneous workers. Working Papers in Economics and Management. Vol 18-2013. Bielefeld: Bielefeld University, Department of Business Administration and Economics; 2013.
Stupnytska, Y., & Zaharieva, A. (2013). Optimal policy and the role of social contacts in a search model with heterogeneous workers (Working Papers in Economics and Management, 18-2013). Bielefeld: Bielefeld University, Department of Business Administration and Economics. doi:10.4119/unibi/2915425
Stupnytska, Yuliia, and Zaharieva, Anna. 2013. Optimal policy and the role of social contacts in a search model with heterogeneous workers. Vol. 18-2013. Working Papers in Economics and Management. Bielefeld: Bielefeld University, Department of Business Administration and Economics.
Stupnytska, Y., and Zaharieva, A. (2013). Optimal policy and the role of social contacts in a search model with heterogeneous workers. Working Papers in Economics and Management, 18-2013, Bielefeld: Bielefeld University, Department of Business Administration and Economics.
Stupnytska, Y., & Zaharieva, A., 2013. Optimal policy and the role of social contacts in a search model with heterogeneous workers, Working Papers in Economics and Management, no.18-2013, Bielefeld: Bielefeld University, Department of Business Administration and Economics.
Y. Stupnytska and A. Zaharieva, Optimal policy and the role of social contacts in a search model with heterogeneous workers, Working Papers in Economics and Management, vol. 18-2013, Bielefeld: Bielefeld University, Department of Business Administration and Economics, 2013.
Stupnytska, Y., Zaharieva, A.: Optimal policy and the role of social contacts in a search model with heterogeneous workers. Working Papers in Economics and Management, 18-2013. Bielefeld University, Department of Business Administration and Economics, Bielefeld (2013).
Stupnytska, Yuliia, and Zaharieva, Anna. Optimal policy and the role of social contacts in a search model with heterogeneous workers. Bielefeld: Bielefeld University, Department of Business Administration and Economics, 2013. Working Papers in Economics and Management. 18-2013.
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2019-09-06T09:18:54Z
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