Abstract:
Labor markets reward the most talented workers through high wages and beneficial transitions, and the opposite occurs for the most unproductive ones. These casual observations relating worker flows and and abilty or match quality find empirical support: the unemployment rate and wage inequality have highly significant, positive and concave relation over time and across states in the US. Job finding rates and Job-to-job transitions also share this common pattern. We rationalize these facts through employer hiring selectivity in a non-sequential search model with on-the-job search. Most qualified applicants, either unemployed or employed, have higher chances to be hired, especially when unemployment is high. Employer selectivity also generates a general equilibrium composition effect affecting inequality. We estimate our model using CPS worker flows and wages data via Generalized Method of Moments. We explain part of the positive and concave relation between unemployment and wage inequality by shifts in the average worker/match productivity.

(co-écrit avec Benjamin Villena, Universidad Diego Portales - Chili)