Do good workers hurt bad workers—or is it the other way around?*

I study the effect of worker heterogeneities on wages and unemployment in a directed search model. A worker's productivity in a given firm depends both on his type and on a worker–firm specific component. Firms advertise unconditional wage offers only. The resulting equilibrium is inefficient, with a too high wage premium for high‐type workers, and too few high‐type jobs. This reduces the welfare of high‐type workers. My findings contrast with the findings in the literature on labor market segmentation, where it is argued that the existence of high‐type workers forces down wages and reduces welfare for low‐type workers.