Search, Concave Production, and Optimal Firm Size
AbstractThis 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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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 882.
Date of creation: Jan 1994
Date of revision:
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Other versions of this item:
- 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
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- repec:fth:prinin:300 is not listed on IDEAS
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