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A Theory of Non-Coasean Labor Markets

Author

Listed:
  • Blanco, Andrés

    (University of Michigan)

  • Drenik, Andres

    (University of Texas at Austin)

  • Moser, Christian

    (Columbia University)

  • Zaratiegui, Emilio

    (Columbia University)

Abstract

We develop a theory of labor markets in a monetary economy with four realistic features: search frictions, worker productivity shocks, wage rigidity, and two-sided lack of commitment. Due to the non-Coasean nature of labor contracts, inefficient job separations occur in the form of endogenous quits and layoffs that are unilaterally initiated whenever a worker's wage-to-productivity ratio moves outside an inaction region. We derive sufficient statistics for the aggregate labor market response to a monetary shock based on the distribution of workers' wage-to-productivity ratios. These statistics crucially depend on the incidence of inefficient job separations, which we show how to identify using readily available microdata on wage changes and worker flows between jobs.

Suggested Citation

  • Blanco, Andrés & Drenik, Andres & Moser, Christian & Zaratiegui, Emilio, 2023. "A Theory of Non-Coasean Labor Markets," IZA Discussion Papers 16121, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp16121
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    References listed on IDEAS

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    1. Massimo Marinacci & Luigi Montrucchio, 2019. "Unique Tarski Fixed Points," Management Science, INFORMS, vol. 44(4), pages 1174-1191, November.
    2. Moen, Espen R, 1997. "Competitive Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 385-411, April.
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    Cited by:

    1. Serdar Birinci & Fatih Karahan & Yusuf Mercan & Kurt See, 2022. "Labor Market Shocks and Monetary Policy," Working Papers 2022-016, Federal Reserve Bank of St. Louis, revised Sep 2023.

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    More about this item

    Keywords

    inflation; monetary policy; wage rigidity; wage inequality; unemployment; inefficient job separations; quits; layoffs; directed search; commitment; stopping times; continuous-time methods; variational inequalities;
    All these keywords.

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

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