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Entry costs and labor market dynamics

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  • Shao, Enchuan
  • Silos, Pedro

Abstract

We study the cyclical dynamics of the value of a vacant position in labor markets characterized by search and matching frictions. We present a model of aggregate fluctuations in which firms face sunk costs to enter the production process. Our specification of sunk costs gives rise to a countercyclical value of a vacancy. We find that this overlooked object has important quantitative implications for the study of labor markets and business cycles. It affects the cyclical dynamics of the surplus division between workers and firms, and provides a better characterization of the movements in income shares over recessions and expansions. Understanding movements in the value of a vacant position helps to link the dynamics of income shares with recent volatility puzzles found in models of search and matching in labor markets.

Suggested Citation

  • Shao, Enchuan & Silos, Pedro, 2013. "Entry costs and labor market dynamics," European Economic Review, Elsevier, vol. 63(C), pages 243-255.
    • Handle: RePEc:eee:eecrev:v:63:y:2013:i:c:p:243-255
    DOI: 10.1016/j.euroecorev.2013.07.009
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Dongya Koh & Raül Santaeulàlia-Llopis, 2017. "Countercyclical Elasticity of Substitution," Working Papers 946, Barcelona School of Economics.
    2. Fabio Ghironi & Sanjay K. Chugh, 2010. "Optimal Fiscal Policy with Endogenous Product Variety," 2010 Meeting Papers 812, Society for Economic Dynamics.
    3. Miroslav Gabrovski & Mario Rafael Silva, 2023. "Unemployment and Labor Productivity Co-movement: the Role of Firm Exit," Working Papers 202301, University of Hawaii at Manoa, Department of Economics.
    4. Robert E. Hall & Marianna Kudlyak, 2022. "Why Has the US Economy Recovered So Consistently from Every Recession in the Past 70 Years?," NBER Macroeconomics Annual, University of Chicago Press, vol. 36(1), pages 1-55.
    5. Masashige Hamano & Francesco Zanetti, 2017. "Endogenous Turnover and Macroeconomic Dynamics," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 26, pages 263-279, October.
    6. Pries, Michael J., 2016. "Uncertainty-driven labor market fluctuations," Journal of Economic Dynamics and Control, Elsevier, vol. 73(C), pages 181-199.
    7. Rossi, Lorenza, 2019. "The overshooting of firms’ destruction, banks and productivity shocks," European Economic Review, Elsevier, vol. 113(C), pages 136-155.
    8. Andrea Colciago & Lorenza Rossi, 2015. "Firms entry, oligopolistic competition and labor market dynamics," DNB Working Papers 465, Netherlands Central Bank, Research Department.
    9. Shao, Enchuan & Silos, Pedro, 2017. "Wealth inequality and employment fluctuations," Economic Modelling, Elsevier, vol. 67(C), pages 125-135.
    10. Joshua Bernstein & Alexander W. Richter & Nathaniel A. Throckmorton, 2020. "Entry and Exit, Unemployment, and the Business Cycle," Working Papers 2018, Federal Reserve Bank of Dallas, revised 12 Jan 2021.

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    More about this item

    Keywords

    Entry costs; Search and matching; Unemployment; Aggregate fluctuations;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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