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Search, Concave Production, and Optimal Firm Size

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Author Info
Smith, Eric

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Abstract

This paper presents a simple search and bargaining economy in which firms use concave production. Because a firm and worker negotiate over the worker's marginal productivity, the firm's wage is a function of its labour force. Reacting to this wage function, firms choose an excessively large and inefficient number of workers. They overemploy, but because too few firms exist in equilibrium, aggregate employment and vacancies are suboptimal. Imposing a fixed exogenous wage, for example by legislating a minimum wage or through union contracting, reduces this inefficiency.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 882.

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Date of creation: Jan 1994
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Handle: RePEc:cpr:ceprdp:882

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Related research
Keywords: Bargaining Firm Size Minimum Wages Search Unions

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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. repec:fth:prinin:300 is not listed on IDEAS
  4. 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!]
  5. David Card, 1992. "Using regional variation in wages to measure the effects of the federal minimum wage," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 46(1), pages 22-37, October.
  6. Olivier Jean Blanchard & Peter Diamond, 1990. "The Beveridge Curve," NBER Reprints 1405, National Bureau of Economic Research, Inc.
    Other versions:
  7. 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)
  8. 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:
  9. David Card, 1992. "Using Regional Variation in Wages to Measure the Effects of the Federal Minimum Wage," NBER Working Papers 4058, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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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, 2006. "Product Market Regulation and Endogenous Union Formation," IZA Discussion Papers 2222, Institute for the Study of Labor (IZA). [Downloadable!]
  4. Monique Ebell & Christian Haefke, 2008. "Product Market Deregulation and the U.S. Employment Miracle," CEP Discussion Papers dp0874, Centre for Economic Performance, LSE. [Downloadable!]
  5. Monique Ebell & Christian Haefke, 2002. "Product Market Deregulation and the U.S. Employment Miracle," Economics Working Papers 930, Department of Economics and Business, Universitat Pompeu Fabra, revised Jan 2006. [Downloadable!]
    Other versions:
  6. 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!]
  7. 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!]
  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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