Directed search, mismatch and efficiency

Abstract 0

This short paper provides a directed search model of the labor market in which the persistency of vacant jobs results from a mismatch problem, not from a pure coordination problem. Since firms cannot commit to an output cutoff lower than the posted wage, laissez-faire is inefficient. But, under a binding condition, public policy can restore market efficiency by associating a minimum wage with a layoff tax.

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