Question

explain clearly 1) the set-up of the Job Search Model, 2) how it is possible in such a setting that firms make more profit than predicted in the perfectly competition model, and 3) how this model may explain the finding in wages paid to similarly productive workers differ across industries and firms is in line with the standard labour market model with perfect competition?

Answer 1

It is the simplest form the job search model is based on the following assumptions The time is continuous Although the wages are associated with the future job.

The Standard Job Search Model Basic FormulationAlthough the origin of job search is normally attributed to the two seminalarticles by McCall (1970) and Mortensen (1970), two papers by Stigler (1961,1962) questioned the perfect information assumption of the neoclassical theory andlaid some of the foundations of what was then developed in the 1970s.Both in Stigler’s model and in the basic job search model, the individual hasmore than one earning opportunities available and has to select the “best” one.However, the “strategy” to select the best job is different. In Stigler’s model, themain decision an individual has to make is how many jobs to sample beforedeciding which one is the “best.” Sampling an extra job has an associated “search”marginal cost cover a given time period, and the decision variable is the samplesize nrepresenting the number of firms a job seeker will consider in their search.

The neoclassical assumption of perfect information is a special case where the costcequals zero.

In job search models, the decision process is sequential. There is no “optimal” sample size because the jobs are randomly sampled one at a time and the individualstops when an acceptable job becomes available. Hence, the number of jobssampled depends on their sequence and the sample size itself is a random variable. The basic job search model is simply an “optimal stopping rule”problem which can be described as follows.Each job seeker receives nwage offers – w1,w2,...,wn– per period of length hspent searching for a job. The best offer in each period is equal tow¼max fw1;w2;...;wng Wages associated with future job offers.