Akhil Vohra's paper on unraveling is in the latest AEJ:Micro. It proposes a novel cause of unraveling of labor markets. Unraveling--early hiring before competitors--can arise for multiple reasons...
Unraveling and Inefficient Matching
American Economic Journal: Microeconomics
vol. 17, no. 3, August 2025
(pp. 415–53)
Abstract
Labor markets unravel when workers and firms match inefficiently early under limited information. I argue that a significant determinant of unraveling is the presence of a secondary market, where firms can poach workers, and its transparency: how well firms can ascertain workers' value once they are employed by competitors. While early hiring reduces the probability of hiring a high-type worker, it prevents rivals from learning about the worker, making poaching difficult. When secondary markets are very transparent, unraveling disappears. However, the matching remains inefficient due to the incentives of low-tier firms to communicate that they have not hired top-quality workers.
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