When workers have different productivities, firms do not adopt the efficient technology mix.

What is it about?

This paper studies how search externalities and wage bargaining distort vacancy creation and the allocation of workers to jobs in markets with two-sided heterogeneity. In equilibrium, there is perfect segmentation across sectors, which is determined by a unique threshold of workers’ productivity. This threshold is inefficient due to participation and composition externalities. The relative strength of these externalities depends on the distribution of workers’ skills, so that when there are many (few) skilled workers, too many (few) high technology jobs are created.

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Why is it important?

In segmented labor market, when there are many (few) skilled workers, too many (few) high technology jobs are created. So, while the decentralized allocation is always inefficient, this paper tells you whether it penalizes good or bad workers.

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