Self-Enforced Job Matching
2026-04-27
Complementarities and peer effects are common in matching markets, yet incorporating them often leads to nonexistence of stable matchings. We observe that matching is often an ongoing process rather than a static allocation, where long-lived firms interact over time with short-lived workers. We show that when wages are flexible and firms are sufficiently patient, a dynamically stable solution always exists in many-to-one matching markets — even with complementarities and peer effects. Flexible wages are crucial to our result, as they not only facilitate surplus extraction when firms cooperate in no-poaching agreements but also enhance the threat of punishment through bidding wars. (JEL C72, C73, C78, D21, D62, J31, J41)