An Equilibrium Model of the Labor Market with Endogenous Capital and Two-Sided Search
In this paper we extend the equilibrium search models of Burdett and Mortensen , Burdett and Vishwanath  and Mortensen and Vishwanath  to allow for endogenous matching and endogenous capital determination. In our model, in order to attract a positive measure of workers, firms must produce a specific hiring effort which is by itself costly (cost of advertising posts, training new employees). Workers then draw firms in proportion to their hiring effort. Moreover, as in the model of Acemoglu and Shimer , upon entering the market firms must choose a determined amount of capital which is then fixed for ever and indexes labour productivity. We characterize the equilibrium and derive expressions for the endogenous equilibrium wage distributions. In particular, we show that with convex or concave hiring costs, the Nash equilibrium of the equilibrium search game is such that all operating firms must choose a different amount of capital from a continuous distribution, and a one-to-one mapping exists between capital and wages. We calibrate the model on French firm data and proceed to various simulations of tax reforms. We thus show that a reform which transfers labour taxes from low wages to high wages, by reducing the monopsony power of large firms, is welfare improving: unemployment is reduced, total output is increased as well as government revenue.
Volume (Year): (2002)
Issue (Month): 67-68 ()
|Contact details of provider:|| Postal: |
Web page: http://annales.ensae.fr/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:adr:anecst:y:2002:i:67-68:p:11. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Robert Gary-Bobo)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.