Self-Enforced Job Matching

TL;DR

This paper demonstrates that dynamic stability in job matching markets can be achieved through patience and long-term interactions, even with complex preferences and complementarities, explaining the persistence of no-poaching agreements.

Contribution

It introduces a dynamic framework showing stability under long-term interactions and patience, relaxing classical static assumptions in job matching models.

Findings

Dynamic stability is guaranteed with patient firms.

No-poaching agreements can stabilize otherwise unstable markets.

Complementarities and peer effects do not prevent stability in a dynamic setting.

Abstract

The classic two-sided many-to-one job matching model assumes that firms treat workers as substitutes and workers ignore colleagues when choosing where to work. Relaxing these assumptions may lead to nonexistence of stable matchings. However, matching is often not a static allocation, but an ongoing process with long-lived firms and short-lived workers. We show that stability is always guaranteed dynamically when firms are patient, even with complementarities in firm technologies and peer effects in worker preferences. While no-poaching agreements are anti-competitive, they can maintain dynamic stability in markets that are otherwise unstable, which may contribute to their prevalence in labor markets.