Department of Economics and Business Economics

Coordination Frictions and Job Heterogeneity: A Discrete Time Analysis

Research output: Working paperResearch


  • School of Economics and Management
This paper develops and extends a dynamic, discrete time, job to worker
matching model in which jobs are heterogeneous in equilibrium. The key
assumptions of this economic environment are (i) matching is directed and
(ii) coordination frictions lead to heterogeneous local labor markets. We de-
rive a number of new theoretical results, which are essential for the empirical
application of this type of model to matched employer-employee microdata.
First, we o¤er a robust equilibrium concept in which there is a continu-
ous dispersion of job productivities and wages. Second, we show that our
model can be readily solved with continuous exogenous worker heterogene-
ity, where high type workers (high outside options and productivity) earn
higher wages in high type jobs and are hired at least as frequently to the
better job types as low type workers (low outside options and productivity).
Third, we demonstrate that the tractability of this framework is enhanced
by analyzing and proving the equivalence of "seller auctions" and "buyer
posting". We also prove a related result concerning the equivalence of buyer
posting and seller posting when buyers di¤er continuously. Finally, we show
that all of these results preserve the essential tractability of the baseline
model with aggregate shocks. Therefore, we o¤er a parsimonious, general
equilibrium framework in which to study the process by which the contin-
uous dispersion of wages and productivities varies over the business cycle
for a large population of workers with continuous dispersion of unobserved
worker types.
Original languageEnglish
Place of publicationAarhus
PublisherInstitut for Økonomi, Aarhus Universitet
Number of pages38
Publication statusPublished - 2010

    Research areas

  • Wage dispersion, Productivity dispersion, Directed search

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