Precautionary Demand for Labor in Search Equilibrium
AbstractThis 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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Bibliographic InfoPaper 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.
Length: 24 pages
Date of creation: Oct 2007
Date of revision:
labor demand; firm size distribution.;
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)
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