Directed search with heterogeneous firms: an experimental study
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Directed search models labor markets where workers observe wages before deciding where they will apply. This paper tests this model for the case of heterogeneous firms in a laboratory experiment. The theory predicts that more productive firms offer higher wages and workers apply more often to these higher wages. In consequence, more productive firms are more likely to match and the market is more efficient than the prediction of an alternative model where search is random. The main results of the experiment are that average firms offer wages that are close to or a little lower than the theoretical predictions but highly variable and workers apply more often to high offers but not to the extent predicted. The markets are no more efficient than random search predicts, because of the variation in wage offers.
KeywordsDirected search Experimental economics Heterogeneous productivity
JEL ClassificationC92 J64
I wish to thank Andrew Schotter and Guillaume Frechette for their help on this project as well as numerous others for insightful comments. Also, thanks to the Center for Experimental Social Science for financial support. Finally, I also thank participants at the CESS-CREED Graduate Student Conference 2011, the North American ESA Conference 2011, and the matching workshop at the Philadelphia Federal Reserve Bank in May 2013.
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