This paper considers a matching model of the labour market where firms can get partial information about workers by testing them prior to hiring them. It is shown that firm's hiring decisions generate several external effects. The first is that by testing the average productivity of workers in...

This paper provides a counterexample to some recent results of Grout (1984) which state that in a bargaining situation without binding wage agreements, the capital stock will be biased downwards. In a general equilibrium setting, this result may be reversed. The argument is built around a simple...