Endogenous labour market segmentation in a matching model

This paper extends work by Burdett and Mortensen (1989) and Mortensen and Vishwanath (1991) and examines equilibria in a matching model with identical firms and workers in which employed as well as unemployed workers receive wage offers. It shows that there are generally a continuum of equilibria often of a form that resembles labour market segmentation in that there are some firms paying high wages and facing excess supply of labour and some firms paying low wages with an excess demand for labour. The implication of the model are explored.