Ranking and Search Effort in Matching

Abstract

This paper studies the relationship between search effort and workers’ ranking by employers. We propose a matching model in which employers’ common preferences over a continuum of heterogeneous workers affect the number of applications each worker sends out. We show that in equilibrium, the relationship is hump-shaped for sufficiently high vacancy-to-worker ratios, that is highly-ranked and lowly-ranked workers send out fewer applications than workers of mid-range rank. This arises due to two opposing forces driving the incentive of applicants. Increasing the number of applications acts as insurance against unemployment, but is less effective when the probability of success for each application is low. This mechanism exacerbates the negative employment outcomes of low-rank workers. We discuss comparative statics with regards to the size of the vacancy pool and application cost, and show that, in contrast to the market equilibrium, in the solution of the social planner the number of applications are monotonously decreasing in rank.