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Wage Competition with Heterogeneous Workers and Firms

Jonathan Hamilton¹; Jacques-François Thisse^2,3,4; Yves Zenou

¹ University of Florida · ² École nationale des ponts et chaussées · ³ Centre for Economic Policy Research · ⁴ UCLouvain

We study imperfect competition in the labor market when both workers and firms are heterogeneous. When firms cannot observe workers' skill, firms pay workers equal wages, but workers absorb training costs. When firms can identify worker types, firms pay different net wages to different workers. Voters select the level of general education that is financed by a lump‐sum tax. Workers are on average better off when firms can observe workers' skill for a given level of general human capital, but the median voter prefers a higher level of general human capital when firms cannot observe worker types.

DOI

10.1086/209966

Volume

18 (3)

Pages

453-472

Language

en

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BibTeX

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