Competitive On-the-Job Search: Recent Literature and New Directions

The paper proposes an extension to the competitive on-the-job search model (Garibaldi and Moen 2010; Garibaldi, Moen and Sommervoll 2016). The model is characterized by hiring costs and directed search. Firms permanently differ in productivity levels, their production function features constant or decreasing returns to scale, and search costs are convex in search intensity. Wages are determined in a competitive manner, as firms advertise wage contracts (expected discounted incomes) so as to balance wage costs and search costs (queue length). An important assumption is that a firm is able to sort out its coordination problems with its employees in such a way that the on-the-job search behavior of workers maximizes the match surplus. In this paper, the equilibrium of the model is characterized for three types of firms assuming that the market is in a "pure job ladder" equilibrium. That is: unemployed workers search for low-productivity/low-wage firms, workers in low-wage firms search for firms slightly higher on the productivity/ ladder, and so forth up to the workers in the second most productive firms who only apply to the most productive firms. The presence of an equilibrium is supported by a numerical simulation, dynamics of the model are analysed and finally I argue the possibility that the equilibrium found is in fact a pure job ladder equilibrium.