Abstract:
This paper presents a very simple directed search model of the labour market in which
no wage announcements are made. Wages, instead, are determined by an ex post bidding
mechanism: an auction without a reserve price. We characterize the properties of the
equilibrium of the model, and examine its implied Beveridge curve. We show that this
wage determination mechanism induces efficient job entry in equilibrium. A dynamic
version of the model is calibrated to the US labour market. The model can account
for observed vacancy rates, given parameters that are chosen to match the average
wages and the natural rate of unemployment. In the limit, as the time between offer
rounds in the model approaches zero, the equilibrium approaches the Walrasian
competitive equilibrium.