SCREENING, INTER‐FIRM EXPLOITATION AND JOB SEARCH*
| Date | 01 June 1978 |
| Published date | 01 June 1978 |
| Author | Martin Watts |
| DOI | http://doi.org/10.1111/j.1467-9485.1978.tb00245.x |
Scottish Journal
of
Political
Economy,
Vol.
25,
No.
2,
June
1978
S
C
RE EN1
N
G,
I
NT
E
R-FI
R M
EXP
LO1
TAT1
0
N
AND
JOB
SEARCH*
MARTIN WATTS
Monash
University
The persistence of inter-firm wage dispersion in
a
competitive labour market
can be attributed to some form of heterogeneity of the market participants.
Eaton and Watts (1977) demonstrate that, in a labour market in which
workers have imperfect information about job offers and wage rates, equi-
librium is sometimes characterised by vacancy creation, job search and
significant inter-firm wage dispersion over different levels of employment,
although firms are technically identical and workers are known
to
be homo-
geneous in their capacity to do the job.
In
this paper, too, the labour market is characterised by imperfect informa-
tion. Profit maximising firms each make
a
wage and vacancy creation decision
and hire from
a
labour force of equally productive workers. The labour force
is divisible into two recognisable groups, (e.g. blacks and whites or males and
females) who differ systematically in their turnover and acceptance behaviour.
Their behaviour is stochastic, however, because they gain information about
vacancies and wage rates through random search. Consequently, at a point
in time, firms face different levels and compositions of employment.
The important result
is
that equilibrium in this labour market is char-
acterised by inter-firm wage dispersion, both over direrent levels and different
compositions of employment. Firms, who employ workforces of equal size
but different composition, set dzyerent wage rates, although workers are
homogeneous in their capacity to do the job.
Several authors examine discriminatory behaviour by firms. One class of
models incorporates behaviour by firms resulting from prejudice, although
all workers are equally productive. Becker (1957) first developed the analysis
and Arrow (1972) provides the most complete treatment of this approach.
Unless capital market imperfections or costs of adjustment are introduced,
discriminatory wage differentials disappear in the long run
if
one or more
non-discriminating employers operate in the market.
The second class of models incorporates discriminatory behaviour arising
from erroneous beliefs
on
the part of firms about workers’ productivity.
McCall (1972) demonstrates that employment discrimination will take place
if firms believe that different proportions of two recognisable groups have
*
I
am indebted
to
Curtis Eaton who initially stimulated my interest in this area.
I
am
grateful to the University of British Columbia for its generous allocation of computing
funds. More recently, Peter Riach has provided helpful comments on the application
of
the
analysis
to
male-female wage differentials. Revisions were undertaken while on study
leave at Southampton University.
Date
of
submission of final manuscript:
13
February
1978.
187
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