An Alternative to Signaling: Directed Search and Substitution
American Economic Journal: Microeconomics
vol. 8,
no. 4, November 2016
(pp. 1-15)
Abstract
This paper analyzes a labor market, where: workers can acquire an observable skill at no cost, firms differ in unobserved productivity, workers' skill and firms' productivity are substitutes, and 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.Citation
Levy, Matthew, and Balázs Szentes. 2016. "An Alternative to Signaling: Directed Search and Substitution." American Economic Journal: Microeconomics, 8 (4): 1-15. DOI: 10.1257/mic.20150116Additional Materials
JEL Classification
- D21 Firm Behavior: Theory
- D24 Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
- D82 Asymmetric and Private Information; Mechanism Design
- D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
- J24 Human Capital; Skills; Occupational Choice; Labor Productivity
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