Equilibrium Labor Turnover, Firm Growth and Unemployment
AbstractThis paper considers a dynamic, non-steady state environment in which wage dispersion exists and evolves in response to shocks. Workers do not observe firm productivity and firms do not commit to future wages, but there is on-the-job search for higher paying jobs. The model allows for firm turnover (new start-up firms are created, some existing firms die) and firm specific productivity shocks. In a separating equilibrium, more productive firms signal their type by paying strictly higher wages in every state of the market. Consequently, workers always quit to firms paying a higher wage and so move efficiently from less to more productive firms. As a further implication of the cost structure assumed, endogenous firm size growth is consistent with Gibrat's law. The paper provides a complete characterization and establishes existence and uniqueness of the separating (non-steady state) equilibrium in the limiting case of equally productive firms. The existence of equilibrium with any finite number of firm types is also established. Finally, the model provides a coherent explanation of Danish manufacturing data on firm wage and labor productivity dispersion as well as the cross firm relationship between them.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18022.
Date of creation: Apr 2012
Date of revision:
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Other versions of this item:
- 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.
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- D49 - Microeconomics - - Market Structure and Pricing - - - Other
- D8 - Microeconomics - - Information, Knowledge, and Uncertainty
- E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
- J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
- J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-05-08 (All new papers)
- NEP-BEC-2012-05-08 (Business Economics)
- NEP-DGE-2012-05-08 (Dynamic General Equilibrium)
- NEP-LAB-2012-05-08 (Labour Economics)
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.:
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"An Empirical Model of Growth Through Product Innovation,"
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- Dale T. Mortensen & Rasmus Lentz, 2005. "An Empirical Model of Growth Through Product Innovation," 2005 Meeting Papers 910, Society for Economic Dynamics.
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- Rasmus Lentz & Dale T. Mortensen, 2005. "An Empirical Model of Growth Through Product Innovation," CAM Working Papers 2005-13, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics.
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tecipa-390, University of Toronto, Department of Economics.
- Guido Menzio & Shouyong Shi, 2010. "Directed Search on the Job, Heterogeneity, and Aggregate Fluctuations," American Economic Review, American Economic Association, vol. 100(2), pages 327-32, May.
- Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, June.
- Robert E. Lucas & Jr., 1967. "Adjustment Costs and the Theory of Supply," Journal of Political Economy, University of Chicago Press, vol. 75, pages 321.
- Dale T. Mortensen & Bent Jesper Christensen & Jesper Bagger, 2010. "Wage and Productivity Dispersion: Labor Quality or Rent Sharing?," 2010 Meeting Papers 758, Society for Economic Dynamics.
- 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.
Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Equilibrium labour turnover, firm growth and unemployment
by Christian Zimmermann in NEP-DGE blog on 2012-04-07 19:12:02
- Carrillo-Tudela, Carlos, 2012.
"Job search, human capital and wage inequality,"
ISER Working Paper Series
2012-23, Institute for Social and Economic Research.
- Carlos Carrillo-Tudela, 2012. "Job Search, Human Capital and Wage Inequality," CESifo Working Paper Series 3979, CESifo Group Munich.
- Carrillo-Tudela, Carlos, 2012. "Job Search, Human Capital and Wage Inequality," IZA Discussion Papers 6949, Institute for the Study of Labor (IZA).
- Carlos Carrillo-Tudela, 2010. "Job Search, Human Capital and Wage Inequality," 2010 Meeting Papers 723, Society for Economic Dynamics.
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