Directed Search On the Job and the Wage Ladder

In this paper we characterize the equilibrium in a labor market where employed workers search on the job and firms direct the search by announcing wages and employment probabilities for the applicants. All workers/jobs are homogeneous and free entry of firms determines the number of jobs. The equilibrium features a wage ladder, with a finite number of rungs. Workers on each particular rung of the ladder choose (optimally) to apply to only the jobs at one level above their current wage, despite that they observe all higher wage offers. Workers choose not to leap several rungs at a time on the wage ladder because the jobs at one level above their current wage provide a significantly higher employment probability, and hence a higher expected surplus, than the jobs at two or more levels above. The wage ladder has the following properties: (i) The gap between two adjacent rungs on the ladder becomes smaller and smaller as wage increases; (ii) A worker s quit rate decreases with wage; (iii)A worker s wage, on average, increases with the employment duration; (iv) The average length of time an unemployed worker will take to return to his previous wage increases with that wage; (v) The density of offer wages decreases with wage; (vi) The density of employed wages can be decreasing, increasing, or hump-shaped. The directed search framework replicates empirical regularities on the wage path of workers and the distribution of offer and employed wages that undirected search cannot.Directed Search, On-the-Job Search, Wage Ladder.

Pricing and Signaling with Frictions

In this paper, we introduce private information into a market with search frictions and evaluate the relative efficiency of two pricing mechanisms, price posting and bargaining. Each seller chooses investment that determines the quality of the good. This quality is the seller's private information before matching and it will be observed in a match. Sellers enter a search market competitively and can choose either to post prices or to bargain. In this environment, a pricing mechanism affects efficiency through the choice of quality and the number of trades. Bargaining induces the efficient choice of quality but an inefficient number of trades because the division of the match surplus is generically inefficient. By directing buyers' search, posted prices internalize search externalities and induce the constrained efficient outcome in the case of public information. However, when the quality is private information, this role of posted prices in directing search can conflict with their role in signaling quality. Focusing on this conflict, we find that bargaining could yield higher efficiency than price posting. We characterize the parameter regions in which each of the two mechanisms dominates in efficiency.Directed search; Signaling; Bargaining; Efficiency

Job and Workers Flows in Europe and the US: Specific Skills or Employment Protection?. Midwest Macroeconomics Meetings 2007, April 27-29, 2007, Cleveland, Ohio.

There is more resistance to layoffs in continental Europe than in the U.S. At the same time, there is some evidence that employed European workers are more productive than their American counterparts. We reconcile these two facts by proposing that some institutions, such as Employment Protection Legislation (EPL), induce workers to invest in and develop job specific skills, making them more productive and leading to costly displacement as these types of skills are lost upon separation from the employer. It is also well established that mobility patterns -flows in and out of unemployment or even movements from job to job, are reduced in continental Europe relative to the U.S. The possibility to invest in skill improvement introduces a complementarity between EPL and the investment decision: more stable matches increase the incentive to accumulate specific skills; but also more productive matches are broken less frequently; hence there is a “mutliplier” effect arising from this complementarity. To quantitatively assess all these propositions, we built a tractable asymmetric information matching model featuring all types of transitions out of employment: layoffs, quits to unemployment and job-to-job transitions. We find that EPL does induce workers to invest more in human capital and may help explain greater resistance to layoffs in Europe. We find that flows out of employment are indeed reduced by EPL. However, allowing for skill investment does not generate any strong multiplier due to the fact several new effects are at play keeping unemployment duration at a low level and thus putting downward pressure on the multiplier. The conclusion of all this may be that EPL matters for explaining specialization and low movements out of jobs, but that low movements out of unemployment may be better explained by other institutions such as unemployment benefits.

Layoff Costs and Efficiency with Asymmetric Information

Wage determination under asymmetric information generates inefficiencies due to excess turnover. Severance pay and layoff taxes can improve efficiency. We show that inefficient separations can even be fully removed with fixed separation taxes in the case where the relevant private information is exponentially distributed.bargaining, asymmetric information, employment protection legislation, inefficient job separations

Trade and the (Dis)Incentive to Reform Labor Markets: The Case of Reform in the European Union

In a closed economy general equilibrium model, Hopenhayn and Rogerson (1993) find large welfare gains to removing firing restrictions. We explore the extent to which international trade alters this result. When economies trade, labor market policies in one country spill over to other countries through their effect on the terms of trade. A key finding in the open economy is that the share of the welfare gains from domestic labor market reform exported substantially exceeds the share of goods exported. In our baseline case, 105 percent of the welfare gains are exported even though the domestic economy only exports 30 percent of its goods. Thus, with international trade a country receives little to no benefit, and possibly even loses, from unilaterally reforming its labor market. A coordinated elimination of firing taxes yields considerable benefits. We find the welfare gains to the U.K. from labor market reform by its continental trading partners of 0.21 percent of steady state consumption. This insight provides some explanation for recent efforts toward labor market reform in the European Union.Firing Costs, International Trade, Labor Market Reform

Job and Workers Flows in Europe and the US: Specific Skills or Employment Protection?

There is more resistance to layoffs in continental Europe than in the U.S. At the same time, there is some evidence that employed European workers are more productive than their American counterparts. We reconcile these two facts by proposing that some institutions, such as Employment Protection Legislation (EPL), induce workers to invest in and develop job specific skills, making them more productive and leading to costly displacement as these types of skills are lost upon separation from the employer. It is also well established that mobility patterns -flows in and out of unemployment or even movements from job to job, are reduced in continental Europe relative to the U.S. The possibility to invest in skill improvement introduces a complementarity between EPL and the investment decision: more stable matches increase the incentive to accumulate specific skills; but also more productive matches are broken less frequently; hence there is a “mutliplier” effect arising from this complementarity. To quantitatively assess all these propositions, we built a tractable asymmetric information matching model featuring all types of transitions out of employment: layoffs, quits to unemployment and job-to-job transitions. We find that EPL does induce workers to invest more in human capital and may help explain greater resistance to layoffs in Europe. We find that flows out of employment are indeed reduced by EPL. However, allowing for skill investment does not generate any strong multiplier due to the fact several new effects are at play keeping unemployment duration at a low level and thus putting downward pressure on the multiplier. The conclusion of all this may be that EPL matters for explaining specialization and low movements out of jobs, but that low movements out of unemployment may be better explained by other institutions such as unemployment benefits

Trade Mechanism Selection in Markets with Frictions

We endogenize the trade mechanism in a search economy with many homogeneous sellers and many heterogeneous buyers of unobservable type. We study how heterogeneity and the traders\u27 continuation values—which are endogenous—influence the sellers\u27 choice of trade mechanism. Sellers trade off the probability of an immediate sale against the surplus expected from it, choosing whether to trade with everyone and how quickly. In equilibrium sellers may simply target one buyer type via non-negotiable offers (price posting), or may price discriminate (haggling). We also study when haggling generates trading delays. A price setting externality arises because of a strategic complementarity in the sellers\u27 pricing choices

Layoff Costs and Efficiency with Asymmetric Information

Wage determination under asymmetric information generates ine¢ ciencies due to excess turnover. Severance pay and layo¤ taxes can improve e¢ ciency. We show that inefficient separations can even be fully removed with …xed separation taxes in the case where therelevant private information is exponentially distributed

Trade Mechanism Selection in Markets with Frictions.

We endogenize the trade mechanism in a search economy with many homogenous sellers and many heterogeneous buyers of unobservable type. We study how heterogeneity and the traders’ continuation values which are endogenous influence the sellers’ choice of trade mechanism. Sellers trade off the probability of an immediate sale against the surplus expected from it, choosing whether to trade with everyone and how quickly. In equilibrium sellers may simply target one buyer type via non-negotiable offers (price posting), or may price discriminate (haggling). We also study when haggling generates trading delays. A price setting externality arises because of a strategic complementarity in the sellers’ pricing choices.Search ; Prices ; Negotiations ; Asymmetric Information

Solvent effect modelling of isocyanuric products synthesis by chemometric methods

Chemometric tools were used to generate the modelling of solvent e¡ects on the N-alkylation of an isocyanuric acid salt. The method proceeded from a central composite design applied on the Carlson solvent classification using principal components analysis. The selectivity of the reaction was studied from the production of different substituted isocyanuric derivatives. Response graphs were obtained for each compound and used to devise a strategy for solvent selection. The prediction models were validated and used to search for the best selectivity for the reaction system. The solvent most often selected as the best for the reaction is the N,N-dimethylformamide