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Board of Governors of the Federal Reserve System (US)
Finance and Economics Discussion Series
Efficient Mismatch
David M. Arseneau
Brendan Epstein
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.


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David M. Arseneau & Brendan Epstein, Efficient Mismatch, Board of Governors of the Federal Reserve System (US), Finance and Economics Discussion Series 2018-037, 01 Jun 2018.
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Keywords: Competitive search equilibrium ; Crowding in/out ; Labor market frictions ; Skill-mismatch
DOI: 10.17016/FEDS.2018.037
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