Working Paper

Efficient Mismatch

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.

Keywords: Competitive search equilibrium; Crowding in/out; Labor market frictions; skills mismatch;

JEL Classification: E24; J31; J64;

https://doi.org/10.17016/FEDS.2018.037

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: Finance and Economics Discussion Series

Publication Date: 2018-06-01

Number: 2018-037

Pages: 47 pages