Carlos Carrillo-Tudela, Guido Menzio, and Eric Smith
Working Paper 2009-28
October 2009
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This paper revisits the no-recall assumption in job search models with take-it-or-leave-it offers. Workers who can recall previously encountered potential employers in order to engage them in Bertrand bidding have a distinct advantage over workers without such attachments. Firms account for this difference when hiring a worker. When a worker first meets a firm, the firm offers the worker a sufficient share of the match rents to avoid a bidding war in the future. The pair share the gains to trade. In this case, the Diamond paradox no longer holds.
JEL classification: J24, J42, J64
Key words: job search, recall, wage determination, Diamond paradox
The authors thank Randall Wright, Pieter Gautier, James Albrecht and Leo Kaas for helpful insights. This paper has also benefited from comments and suggestions of participants in seminars at the University of Leicester, the University of Konstanz, the Federal Reserve Banks of Atlanta and Cleveland, the Tinbergen Institute, and participants at the National Bureau of Economic Research's "Micro and Macro Perspectives on the Aggregate Labor Market" conference held at the Federal Reserve Bank of Atlanta. The views expressed here are the author's and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the author's responsibility.
Please address questions regarding content to Carrillo-Tudela, Department of Economics, University of Leicester, Astley Clarke Building, University Road, Leicester, LE1 7RH, United Kingdom, cct9@le.ac.uk; Guido Menzio, Department of Economics, University of Pennsylvania, McNeil Building, 3718 Locust Walk, Philadelphia, PA 19104-6297; or Eric Smith, Research Department, Federal Reserve Bank of Atlanta and Department of Economics, University of Essex, Wivenhoe Park, Colchester, Essex, CO4 3SQ, United Kingdom, esmith@essex.ac.uk.
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