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Thesis (Ph. D.)--University of Rochester. Dept. of Economics, 2009.
Firms devote considerable effort and resources to evaluating applications received
after a vacancy is posted. In these chapters I study the impact of Recruiting
Selection in a labor market with search frictions.
In Chapter 1, I depart from the standard search model by allowing firms to simultaneously meet several applicants and choose the best candidate. The model
provides an endogenous matching process with heterogeneous workers in which the
hazard rate out of unemployment increases in productivity. Under recruiting selection, lifetime inequality increases relative to the sequential search benchmark. I
also show that stronger screening may lead to inefficiency since greater selectivity
worsens the productivity of the unemployment pool and disincentives vacancy-
posting. Search frictions coupled with recruiting selection generate new kinds
of externalities that affect transition probabilities and the expected productivity
of recruited workers. A calibration can replicate moments of the distribution of
wages and unemployment durations in CPS data. I also show that an increase of
screening costs reduces inequality and productive efficiency, and decreases negative externalities on other employers.
Chapter 2 introduces a novel source of residual wage dispersion using a framework
akin to Chapter 1. Each employer simultaneously meets several heterogenous applicants, offers the position to the best candidate and bargains with her about the
wage. Since the outside option of the employer is to hire the second-best worker,
the wage paid to the best applicant decreases in the productivity of her closest
competitor. The model also predicts (i) residual wage dispersion of level wages increasing in productivity; (ii) residual wage dispersion of log wages decreasing
in productivity; (iii) negative relation between unemployment and residual wage
dispersion and (iv) positive relation between productivity dispersion and residual
wage dispersion. I compare model's predictions to CPS data and I find support
for its predictions.
Chapter 3 analyzes the existence of randomized hiring strategies in equilibrium
and discusses the effects of the cross-sectional distribution human capital for labor
market outcomes. Skilled and unskilled workers compete for the same jobs in
an economy with search frictions. Employers hire the most profitable candidate.
Since wages are determined via Nash bargaining, if employers strictly prefer skilled
workers, their job finding rate increases. If skilled are not much more productive
than unskilled, this high preference may push their wages up to the point where
their higher profitability vanishes. If this occurs, there is another equilibrium in
which employers randomize the type of worker they hire. Hence, the distribution
of productivities (human capital) in the economy matters for the determination
of the equilibrium. Numerical results suggests that policies that intend to change
human capital distribution in the economy may lead to a substantial changes in
wage and job finding rate inequality.
