Filtering with Search

A firm monopsonistically hires labor from a pool containing both skilled and unskilled workers. The marginal value of a worker depends on the match between the job and the worker's skill level. Unskilled workers can have negative productivity if they are placed in a skilled job. The firm cannot distinguish the two types. The workers are initially dispersed and search for the high wage jobs from the firm. The workers' skill levels are correlated with their patience; equivalently, they obtain indirect benefits, such as non-firm-specific career capital, from jobs that use their skill appropriately. By judiciously choosing different wages for different types of jobs, the firm can partially filter the appropriate worker types and match them with the appropriate jobs. This mechanism works because the probability structure of the job offers changes as searchers accept jobs. This entails a delay in hiring workers who search, but the benefits from filtering that are requisite with the delay can exceed the benefits of hiring all workers immediately without filtering. The wage differentials assumed in standard search models are therefore motivated.