Precautionary Demand for Labor in Search Equilibrium

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Precautionary Demand for Labor in Search Equilibrium

Author Info

Noritaka Kudoh () (Department of Economics, Hokkaido University)
Masaru Sasaki () (Department of Economics, Osaka University)

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Abstract

This paper studies firmsf job creation decisions in a labor market with search frictions. A simple labor market search model is developed in which a firm can search for a second employee while producing with a first worker. A firm expands employment even if the instantaneous payoff to a large firm is less than that of staying small--a firm has a precautionary motive to expand its size. In addition, this motive is enhanced by a greater market tightness. Because of this effect, firmsf decisions become interdependent--a firm creates a vacancy if it expects other firms to do the same, creating strategic complementarity among firms and thereby self-fulfilling multiple equilibria.

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Publisher Info
Paper provided by Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) in its series Discussion Papers in Economics and Business with number 07-34.

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Length: 24 pages
Date of creation: Oct 2007
Date of revision:
Handle: RePEc:osk:wpaper:0734

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Find related papers by JEL classification:
E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

This paper has been announced in the following NEP Reports:

NEP-ALL-2007-10-13 (All new papers)
NEP-BEC-2007-10-13 (Business Economics)
NEP-DGE-2007-10-13 (Dynamic General Equilibrium)
NEP-LAB-2007-10-13 (Labour Economics)
NEP-MAC-2007-10-13 (Macroeconomics)

References listed on IDEAS
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This page was last updated on 2009-11-26.

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