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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- David Card, 1992.
"Using Regional Variation in Wages to Measure the Effects of the Federal Minimum Wage,"
Cornell University, ILR School, vol. 46(1), pages 22-37, October.
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- repec:fth:prinin:300 is not listed on IDEAS
- Lucas, Robert Jr. & Prescott, Edward C., 1974. "Equilibrium search and unemployment," Journal of Economic Theory, Elsevier, vol. 7(2), pages 188-209, February. Full references (including those not matched with items on IDEAS)
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