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Labor Demand and Supply JEL Classi…cation Numbers
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AbstractMarkets sometimes unravel, with o¤ers becoming ine ¢ ciently early. Often this is attributed to competition arising from an imbalance of demand and supply, typically excess demand for workers. However this presents a puzzle, since unraveling can only occur when …rms are willing to make early o¤ers and workers are willing to accept them. We present a model and experiment in which workers ’ quality becomes known only in the late part of the market. However, in equilibrium, matching can occur (ine ¢ ciently) early only when there is comparable demand and supply: a surplus of applicants, but a shortage of high quality applicants.