Abstract: This paper presents a model in which mismatch employment arises in a constrained efficient equilibrium. In the decentralized economy, however, mismatch gives rise to a congestion externality whereby heterogeneous job seekers fail to internalize how their individual actions affect the labor market outcomes of competitors in a common unemployment pool. We provide an analytic characterization of this distortion, assess the distributional nature of the associated welfare effects, and relate it to the relative productivity of low- and high-skilled workers competing for similar jobs.
File(s): File format is application/pdf https://www.federalreserve.gov/econres/feds/files/2018037pap.pdf
Part of Series: Finance and Economics Discussion Series
Publication Date: 2018-06-01
Pages: 47 pages