American Economic Journal:
Microeconomics
ISSN 1945-7669 (Print) | ISSN 1945-7685 (Online)
Unraveling and Inefficient Matching
American Economic Journal: Microeconomics
(pp. 415–53)
Abstract
Labor markets unravel when workers and firms match inefficiently early under limited information. I argue that a significant determinant of unraveling is the presence of a secondary market, where firms can poach workers, and its transparency: how well firms can ascertain workers' value once they are employed by competitors. While early hiring reduces the probability of hiring a high-type worker, it prevents rivals from learning about the worker, making poaching difficult. When secondary markets are very transparent, unraveling disappears. However, the matching remains inefficient due to the incentives of low-tier firms to communicate that they have not hired top-quality workers.Citation
Vohra, Akhil. 2025. "Unraveling and Inefficient Matching." American Economic Journal: Microeconomics 17 (3): 415–53. DOI: 10.1257/mic.20230233Additional Materials
JEL Classification
- C78 Bargaining Theory; Matching Theory
- D47 Market Design
- J23 Labor Demand
- J44 Professional Labor Markets; Occupational Licensing
- M51 Personnel Economics: Firm Employment Decisions; Promotions