Kiel Working Papers, Kiel Institute for World Economics
No 1752:
Selective Hiring and Welfare Analysis in Labor Market Models
Thijs van Rens Christian Merkl
Abstract: Firms select not only how many, but also which workers to
hire. Yet, in standard search models of the labor market, all workers have
the same probability of being hired. We argue that selective hiring
crucially affects welfare analysis. Our model is isomorphic to a search
model under random hiring but allows for selective hiring. With selective
hiring, the positive predictions of the model change very little, but the
welfare costs of unemployment are much larger because unemployment risk is
distributed unequally across workers. As a result, optimal unemployment
insurance may be higher and welfare is lower if hiring is selective
Keywords: labor market models, welfare, optimal unemployment insurance; (follow links to similar papers)
JEL-Codes: E24,; J65; (follow links to similar papers)
29 pages, January 2012
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