Observability, Job-Match, and Segmentation of Labor Markets

Much of the dual labor markets literature is devoted to exploring the reasons as th why the markets are segmented along the lines where the observed wage differentials are not a result of underlying skill differentials . ; and why otherwise comparable workers different the duration of their job tenure and incidence of unemployment. the logic of competitive economics denies the possibility of equally skilled workers being treated differently in labor markets. The model presented in this paper shows that workers could be segregated quite simply due to the structure of information and job-match quality, even though they are the same in terms of productivity. In general, the model predicts that observability of a worker's productivity and the extent of match specificity are key features of labor market segmentation. An important implication is that the negative from the past labor market experienes, sometimes called as hysteresis effect, helps to restrict mobility of workers among different sectors and results in perpetuation of unemployment in the secondary sector. The model also provides an explanation of the efficient wage scheme in the primary sector.