Labor Markets, Inequality, and Hiring Selection

Employers hire more selectively between heterogeneous productivity workers when applicants' queues are longer. Consistently, CPS data reveal a positive and concave relation between unemployment rates and wage inequality.

We rationalize intuition and evidence altogether using a nonsequential search model in which selective hiring stretches out the right tail of the wage distribution and compresses the left one. Using GMM-estimated parameters, we show that mean worker productivity distribution shifts are consistent with the evidence.

Welfare analysis suggests that regressive taxation may enhance efficiency because expected good matches stimulate vacancies, creating a positive externality for other job seekers.

(joint work with Alessandra Pizzo)

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