Search, Concave Production, and Optimal Firm Size
This paper demonstrates that in a free entry search and bargaining economy with concave production firms over-employ. Bargaining allows the worker's wage to depend upon marginal productivity. As such, with strictly concave production, the wage declines as firms employ more labour. Firms react to this declining wage function by choosing an inefficiently large number of workers. However, in equilibrium, fewer firms are likely to enter causing aggregate employment and vacancies to fall. (Copyright: Elsevier)
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Volume (Year): 2 (1999)
Issue (Month): 2 (April)
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- Lucas, Robert Jr. & Prescott, Edward C., 1974. "Equilibrium search and unemployment," Journal of Economic Theory, Elsevier, vol. 7(2), pages 188-209, February.
- David Card, 1992.
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966, C.E.P.R. Discussion Papers.
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- Chalkley, Martin, 1991. "Monopsony Wage Determination and Multiple Unemployment Equilibria in a Non-linear Search Model," Review of Economic Studies, Wiley Blackwell, vol. 58(1), pages 181-93, January.
- Ronald G. Ehrenberg, 1992. "New minimum wage research: Symposium introduction," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 46(1), pages 3-5, October.
- Berman, Eli, 1997. "Help Wanted, Job Needed: Estimates of a Matching Function from Employment Service Data," Journal of Labor Economics, University of Chicago Press, vol. 15(1), pages S251-92, January.
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