Does Digitalisation Increase Labour Market Efficiency?

The paper presented in this research seminar introduces a dynamic version of adverse selection a la Rothschild and Stiglitz (1976) into a model with search unemployment a la Pissarides (1985, 2000). Firms do not know worker ability at the hiring stage but gradually learn about it over time. Firm learning increases relative expected earnings in high-ability jobs and, thereby, enhances imitation incentives of low-ability workers. The net effect on aggregate expected match surplus and unemployment is indeterminate a priori. Numerical results show that firm learning does not increase labor market efficiency.