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Stochastic Search Equilibrium

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  • Giuseppe Moscarini
  • Fabien Postel-Vinay

Abstract

We study equilibrium wage and employment dynamics in a class of popular search models with wage posting, in the presence of aggregate productivity shocks. Firms offer and commit to (Markov) contracts, which specify a wage contingent on all payoff-relevant states, but must pay equally all of their workers, who have limited commitment and are free to quit at any time. We find sufficient conditions for the existence and uniqueness of a stochastic search equilibrium in such contracts, which is Rank Preserving [RP]: larger and more productive firms offer more generous contracts to their workers in all states of the world. On the RP equilibrium path, turnover is always efficient as workers always move from less to more productive firms. The resulting stochastic dynamics of firm size provide an intuitive explanation for the empirical finding that large employers have more cyclical job creation (Moscarini and Postel-Vinay, 2012). Finally, computation of RP equilibrium contracts is tractable.

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Paper provided by David K. Levine in its series Levine's Working Paper Archive with number 661465000000000001.

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Date of creation: 17 Mar 2010
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Handle: RePEc:cla:levarc:661465000000000001

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  1. Leena Rudanko, 2011. "Aggregate and Idiosyncratic Risk in a Frictional Labor Market," American Economic Review, American Economic Association, vol. 101(6), pages 2823-43, October.
  2. Foster, Lucia & Haltiwanger, John C. & Syverson, Chad, 2005. "Reallocation, Firm Turnover, and Efficiency: Selection on Productivity or Profitability?," IZA Discussion Papers 1705, Institute for the Study of Labor (IZA).
  3. Robert E. Hall, 2005. "Job Loss, Job Finding, and Unemployment in the U.S. Economy Over the Past Fifty Years," NBER Working Papers 11678, National Bureau of Economic Research, Inc.
  4. Guido Menzio & Shouyong Shi, 2008. "Efficient Search on the Job and the Business Cycle," PIER Working Paper Archive 08-029, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  5. Melvyn G. Coles, 2001. "Equilibrium Wage Dispersion, Firm Size and Growth," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(1), pages 159-187, January.
  6. Moscarini, Giuseppe & Postel-Vinay, Fabien, 2009. "Large Employers Are More Cyclically Sensitive," IZA Discussion Papers 4014, Institute for the Study of Labor (IZA).
  7. Spear, Stephen E & Srivastava, Sanjay, 1987. "On Repeated Moral Hazard with Discounting," Review of Economic Studies, Wiley Blackwell, vol. 54(4), pages 599-617, October.
  8. Stevens, M., 2000. "Wage-Tenure Contracts in a Frictional Labour Market: Firms' Stratgies for Recruitment and Retention," Economics Papers 2000-w10, Economics Group, Nuffield College, University of Oxford.
  9. Bontemps, C. & Robin, J.M. & van den Berg, G.J., 1998. "Equilibrium Search with Continuous Productivity Dispersion: Theory and Non-Parametric Estimation," Papers 98-07, Centre for Labour Market and Social Research, Danmark-.
  10. Postel-Vinay, Fabien & Robin, Jean-Marc, 2002. "Equilibrium Wage Dispersion with Worker and Employer Heterogeneity," CEPR Discussion Papers 3548, C.E.P.R. Discussion Papers.
  11. Cahuc, Pierre & Postel-Vinay, Fabien & Robin, Jean-Marc, 2003. "Wage Bargaining with On-The-Job Search: Theory and Evidence," CEPR Discussion Papers 4154, C.E.P.R. Discussion Papers.
  12. Fabien Postel-Vinay & Jean-Marc Robin, 2002. "To Match or Not To Match ? Optimal Wage Policy with Endogenous Worker search Intensity," Working Papers 2002-59, Centre de Recherche en Economie et Statistique.
  13. Matthew S. Dey & Christopher J. Flinn, 2005. "An Equilibrium Model of Health Insurance Provision and Wage Determination," Econometrica, Econometric Society, vol. 73(2), pages 571-627, 03.
  14. Fabien Postel-Vinay & Giuseppe Moscarini, 2008. "The Timing of Labor Market Expansions: New Facts and a New Hypothesis," 2008 Meeting Papers 326, Society for Economic Dynamics.
  15. Gadi Barlevy, 2008. "Identification of Search Models using Record Statistics," Review of Economic Studies, Oxford University Press, vol. 75(1), pages 29-64.
  16. Carlos Carrillo-Tudela, 2009. "An Equilibrium Search Model When Firms Observe Workers' Employment Status," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(2), pages 485-506, 05.
  17. Burdett, Kenneth & Mortensen, Dale T, 1998. "Wage Differentials, Employer Size, and Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 257-73, May.
  18. Ken Burdett & Melvyn Coles, 2003. "Equilibrium Wage-Tenure Contracts," Econometrica, Econometric Society, vol. 71(5), pages 1377-1404, 09.
  19. Caputo, Michael R., 2003. "The comparative dynamics of closed-loop controls for discounted infinite horizon optimal control problems," Journal of Economic Dynamics and Control, Elsevier, vol. 27(8), pages 1335-1365, June.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Stochastic Search Equilibrium
    by Christian Zimmermann in NEP-DGE blog on 2010-03-08 04:33:22
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Cited by:
  1. Melvyn G. Coles & Dale T. Mortensen, 2011. "Equilibrium Wage and Employment Dynamics in a Model of Wage Posting without Commitment," NBER Working Papers 17284, National Bureau of Economic Research, Inc.
  2. Roberto Pinheiro & Ludo Visschers, 2012. "Unemployment risk and wage differentials," Economics Working Papers we1209, Universidad Carlos III, Departamento de Economía.
  3. Kaas, Leo & Kircher, Philipp, 2011. "Efficient Firm Dynamics in a Frictional Labor Market," IZA Discussion Papers 5452, Institute for the Study of Labor (IZA).
  4. Jeremy Lise & Jean-Marc Robin, 2013. "The macro-dynamics of sorting between workers and firms," IFS Working Papers W13/22, Institute for Fiscal Studies.
  5. Jesper Bagger & François Fontaine & Fabien Postel-Vinay & Jean-Marc Robin, 2011. "Tenure, Experience, Human Capital and Wages: A Tractable Equilibrium Search Model of Wage Dynamics," Sciences Po publications info:hdl:2441/eu4vqp9ompq, Sciences Po.
  6. Hawkins, William B. & Acemoglu, Daron, 0. "Search with multi-worker firms," Theoretical Economics, Econometric Society.
  7. Coles, Melvyn G. & Mortensen, Dale T., 2012. "Equilibrium labour turnover, firm growth and unemployment," ISER Working Paper Series 2012-07, Institute for Social and Economic Research.
  8. Alan Manning, 2012. "Steady-State Equilibrium in a Model of Short-Term Wage-Posting," CEP Discussion Papers dp1158, Centre for Economic Performance, LSE.
  9. Coles, Melvyn G & Kelishomi, Ali Moghaddasi, 2011. "New Business Start-ups and the Business Cycle," CEPR Discussion Papers 8588, C.E.P.R. Discussion Papers.
  10. Bachmann, Rüdiger & Bayer, Christian & Seth, Stefan & Wellschmied, Felix, 2013. "Cyclicality of Job and Worker Flows: New Data and a New Set of Stylized Facts," IZA Discussion Papers 7192, Institute for the Study of Labor (IZA).

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