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Search, Concave Production, and Optimal Firm Size

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Author Info
Eric Smith (Department of Economics, University of Essex)

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Abstract

This paper demonstrates that in a free entry search and bargaining economy with concave production firms over-employ. Bargaining allows the worker's wage to depend upon marginal productivity. As such, with strictly concave production, the wage declines as firms employ more labour. Firms react to this declining wage function by choosing an inefficiently large number of workers. However, in equilibrium, fewer firms are likely to enter causing aggregate employment and vacancies to fall. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1006/redy.1998.0056
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Publisher Info
Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 2 (1999)
Issue (Month): 2 (April)
Pages: 456-471
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Handle: RePEc:red:issued:v:2:y:1999:i:2:p:456-471

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Related research
Keywords: search; Bargaining; labor hoarding; minimum wages; unions;

Other versions of this item:

Find related papers by JEL classification:
J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Berman, Eli, 1997. "Help Wanted, Job Needed: Estimates of a Matching Function from Employment Service Data," Journal of Labor Economics, University of Chicago Press, vol. 15(1), pages S251-92, January. [Downloadable!] (restricted)
  2. Ronald G. Ehrenberg, 1992. "New minimum wage research: Symposium introduction," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 46(1), pages 3-5, October.
  3. Chalkley, Martin, 1991. "Monopsony Wage Determination and Multiple Unemployment Equilibria in a Non-linear Search Model," Review of Economic Studies, Blackwell Publishing, vol. 58(1), pages 181-93, January. [Downloadable!] (restricted)
  4. repec:fth:prinin:300 is not listed on IDEAS
  5. David Card, 1992. "Using Regional Variation in Wages to Measure the Effects of the Federal Minimum Wage," Working Papers 680, Princeton University, Department of Economics, Industrial Relations Section.. [Downloadable!]
    Other versions:
  6. Lucas, Robert Jr. & Prescott, Edward C., 1974. "Equilibrium search and unemployment," Journal of Economic Theory, Elsevier, vol. 7(2), pages 188-209, February. [Downloadable!] (restricted)
  7. Coles, Melvyn G & Smith, Eric, 1996. "Cross-Section Estimation of the Matching Function: Evidence from England and Wales," Economica, London School of Economics and Political Science, vol. 63(252), pages 589-97, November. [Downloadable!] (restricted)
    Other versions:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Winfried Koeniger & Julien Prat, 2007. "Employment Protection, Product Market Regulation and Firm Selection," Working Papers 07-03, Utrecht School of Economics. [Downloadable!]
    Other versions:
  2. Ebell, Monique & Haefke, Christian, 2003. "Product Market Deregulation and Labor Market Outcomes," IZA Discussion Papers 957, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  3. Monique Ebell & Christian Haefke, 2009. "Product Market Deregulation and the U.S. Employment Miracle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(3), pages 479-504, July. [Downloadable!] (restricted)
    Other versions:
  4. Monique Ebell & Christian Haefke, 2006. "Product Market Regulation and Endogenous Union Formation," IZA Discussion Papers 2222, Institute for the Study of Labor (IZA). [Downloadable!]
  5. Noritaka Kudoh & Masaru Sasaki, 2007. "Employment and Hours of Work," Discussion Papers in Economics and Business 07-35, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP). [Downloadable!]
    Other versions:
  6. Krause, Michael & Lubik, Thomas A., 2007. "Does intra-firm bargaining matter for business cycle dynamics?," Discussion Paper Series 1: Economic Studies 2007,17, Deutsche Bundesbank, Research Centre. [Downloadable!]
  7. André Kurmann, 2009. "Holdups and Overinvestment in Physical Capital Markets," Cahiers de recherche 0904, CIRPEE. [Downloadable!]
  8. Noritaka Kudoh & Masaru Sasaki, 2007. "Precautionary Demand for Labor in Search Equilibrium," Discussion Papers in Economics and Business 07-34, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP). [Downloadable!]
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