Review of Economic Studies Vol. 58 No. 4 1991
Information Externalities in the Labour Market and the Duration of Unemployment
Abstract
A matching model is analyzed in which firms imperfectly test workers prior to hiring them. If (some) firms hire only workers who pass the test, there is an informational externality; unemployment duration is a signal of productivity. In equilibrium, if it is profitable for a firm to test, it is also profitable for it to condition its hiring decision on duration, hiring those whose duration is less a than critical value. Sensitivity analysis of the latter suggests explanations for the dependence of reemployment probabilities on duration and the instability of the U-V curve.
- DOI
- 10.2307/2297830
- Volume
- 58
- Issue
- 4
- Pages
- 733
- Sources
- bibtex:phds-export.bib crossref openalex