On‐the‐Job Search in a Matching Model with Heterogeneous Jobs and Workers

Abstract

This paper considers a matching model with heterogenous jobs (unskilled and skilled) and workers ( low and high- educated) which allows for on-the-job search by mismatched workers. The latter are high-educated workers who transitorily accept unskilled jobs and continue to search for skilled jobs. Our findings show that on-the-job search introduces an additional source of between and within-group wage inequality. Furthermore, the higher quit rate of mismatched workers exerts a negative externality on unskilled jobs and weakens the labour market position of low-educated workers. This last feature changes the effects of skill-biased technological change and it alters the response of the labour market to shifts in the skill distribution. ∗ This paper has been written for presentation as an Invited Lecture at the annual conference of the European Association of Labour Economics (EALE 2003), Seville, 18-21 september, 2003. We are very grateful to Maite Blazquez for excellent research assistance. We also wish to thank Barbara Petrongolo, participants in seminars at UC3M, CORE, Essex and LSE for helpful comments and, especially, J. Albrecht for his insightful discussion on a preliminary draft of this paper. The usual disclaimer applies.