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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- Coles, Melvyn G & Smith, Eric, 1994.
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CEPR Discussion Papers
966, C.E.P.R. Discussion Papers.
- 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.
- 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.
- repec:fth:prinin:300 is not listed on IDEAS
- Chalkley, Martin, 1991. "Monopsony Wage Determination and Multiple Unemployment Equilibria in a Non-linear Search Model," Review of Economic Studies, Wiley Blackwell, vol. 58(1), pages 181-93, January.
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