Agents with a richer set of opportunities to trade should be able to demand better terms of trade. For instance, workers who are otherwise equally-qualified may differ in their access to vacancies, e.g. because their social networks are larger or smaller. When a worker is a candidate for vacancies more often, the dynamic opportunity cost of foregoing a current opportunity for employment is smaller. We formalize these insights in a model of dynamic matching and price formation following Satterthwaite and Shneyerov (2007), in which unemployed workers are matched with
open jobs in discrete time, and negotiation between a firm and a set of workers is modeled as a first-price auction. We show that when workers can be ordered by a one-dimensional parameter which summarizes their access to vacancies, wages and present discounted utility are monotonically increasing in the size of the network. However, the length of stints of unemployment is not necessarily monotonically related to network size. Workers with better access may nevertheless remain unemployed longer, particularly in tight markets where positions are short-lived.
Presented by:
Theodore Turocy (University of East Anglia)
Date & time:
May 13, 2013 3:00 pm
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