Jobs in the primary sector require firm-specific training, with wages determined as a result of bargaining. Firms pay for the training and since they are imperfectly informed about worker productivity, they test workers before hiring them. The secondary sector is competitive. Taking a job in the secondary sector signals low productivity, and therefore workers in the secondary sector are unable to get jobs in the primary sector. Open unemployment coexists with unfilled vacancies for low wage jobs.
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Citation
Goffries, Nils and McCormick, Barry (1995) Open unemployment, training and discrimination in a segmented labor market European Economic Review, 39, (1), pp. 1-15. (doi:10.1016/0014-2921(94)00012-O).
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