A new GLO Discussion Paper develops a dynamic version of the competitive search model with adverse selection. Numerical results show that firm learning does not increase labor market efficiency.
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GLO Discussion Paper No. 700, 2020
Adverse selection, learning, and competitive search – Download PDF
by Mayr-Dorn, Karin
GLO Fellow Karin Mayr-Dorn
Author Abstract: I develop a dynamic version of the competitive search model with adverse selection in Guerrieri, Shimer and Wright (2010). My model allows for an analysis of the effects of firm learning on labor market efficiency in the presence of search frictions. I find that firm learning increases relative expected earnings in high-ability jobs and, thereby, enhances imitation incentives of low-ability workers. The net effect on the aggregate expected match surplus and unemployment is indeterminate a priori. Numerical results show that firm learning does not increase labor market efficiency.
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