TY - JOUR
T1 - Frictional assignment, Part II
T2 - Infinite horizon and inequality
AU - Shi, Shouyong
N1 - Funding Information:
I thank an associate editor, a referee and the following people for comments and discussions: Eric Fisher, George Neumann and especially Robert Shimer. I have also benefited from the comments given by workshop and conference participants at University of Hong Kong, Illinois (Urbana–Champaign), Indiana, Laval, Tilburg, Toronto, Waterloo, Canadian Economic Theory meeting (Toronto, 1999), Canadian Macroeconomic Study Group meeting (London, Ontario, 1999), American Economic Association meeting (Boston, 2000), and the Society for Economic Dynamics (New York, 2002). Financial support from the Bank of Canada Fellowship and from the Social Sciences and Humanities Research Council of Canada is gratefully acknowledged. The opinion expressed here is the author’s own and does not represent the view of the Bank of Canada. All errors are mine alone.
PY - 2005/1
Y1 - 2005/1
N2 - In an infinite-horizon economy with matching frictions, I study the efficient assignment between workers of different skill levels and machines of different quality levels. Under some restrictions I show that the efficient allocation assigns a unique machine quality and market tightness to each skill, and that the assignment is saddle-path stable. The efficient assignment is not necessarily positively assortative and efficient wages do not necessarily increase with the skill level. Nevertheless, the social value of workers always increases with the skill level. I then show that the efficient allocation can be decentralized by a market mechanism, in which the firms direct workers' search by announcing and committing to the machine quality, the skill level they intend to hire for such machines, and the time-path of wages. Finally, I calibrate the model to the US data and examine how a skill-biased technological progress affects the assignment and inequality.
AB - In an infinite-horizon economy with matching frictions, I study the efficient assignment between workers of different skill levels and machines of different quality levels. Under some restrictions I show that the efficient allocation assigns a unique machine quality and market tightness to each skill, and that the assignment is saddle-path stable. The efficient assignment is not necessarily positively assortative and efficient wages do not necessarily increase with the skill level. Nevertheless, the social value of workers always increases with the skill level. I then show that the efficient allocation can be decentralized by a market mechanism, in which the firms direct workers' search by announcing and committing to the machine quality, the skill level they intend to hire for such machines, and the time-path of wages. Finally, I calibrate the model to the US data and examine how a skill-biased technological progress affects the assignment and inequality.
UR - http://www.scopus.com/inward/record.url?scp=11844258844&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=11844258844&partnerID=8YFLogxK
U2 - 10.1016/j.red.2004.10.004
DO - 10.1016/j.red.2004.10.004
M3 - Article
AN - SCOPUS:11844258844
SN - 1094-2025
VL - 8
SP - 106
EP - 137
JO - Review of Economic Dynamics
JF - Review of Economic Dynamics
IS - 1
ER -