IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Efficient Firm Dynamics in a Frictional Labor Market

  • Leo Kaas

    ()

    (Department of Economics, University of Konstanz, Germany)

  • Philipp Kircher

    ()

    (Department of Economics, London School of Economics and University of Pennsylvania, USA)

The introduction of firm size into labor search models raises the question how wages are set when average and marginal product differ. We develop and analyze an alternative to the existing bargaining framework: Firms compete for labor by publicly posting long-term contracts. In such a competitive search setting, firms achieve faster growth not only by posting more vacancies, but also by offering higher lifetime wages that attract more workers which allows to fill vacancies with higher probability, consistent with empirical regularities.The model also captures several other observations about firm size, job flows, and pay. In contrast to bargaining models, efficiency obtains on all margins of job creation and destruction, both with idiosyncratic and aggregate shocks. The planner solution allows a tractable characterization which is useful for computational applications.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.wiwi.uni-konstanz.de/workingpaperseries/WP_Kaas-Kircher-1-11.pdf
Download Restriction: no

Paper provided by Department of Economics, University of Konstanz in its series Working Paper Series of the Department of Economics, University of Konstanz with number 2011-01.

as
in new window

Length: 56 pages
Date of creation: 20 Jan 2011
Date of revision:
Handle: RePEc:knz:dpteco:1101
Contact details of provider: Postal:
D-78457 Konstanz

Phone: +49-7531-88-3713
Fax: +49-7531-88-3130
Web page: http://www.wiwi.uni-konstanz.de/fb

More information through EDIRC

Order Information: Web: http://www.wiwi.uni-konstanz.de/fb

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Menzio, Guido & Moen, Espen R., 2010. "Worker replacement," Journal of Monetary Economics, Elsevier, vol. 57(6), pages 623-636, September.
  2. Menzio, Guido & Shi, Shouyong, 2010. "Block recursive equilibria for stochastic models of search on the job," Journal of Economic Theory, Elsevier, vol. 145(4), pages 1453-1494, July.
  3. Steven J. Davis & R. Jason Faberman & John Haltiwanger, 2006. "The Flow Approach to Labor Markets: New Data Sources and Micro-Macro Links," Journal of Economic Perspectives, American Economic Association, vol. 20(3), pages 3-26, Summer.
  4. Guido Menzio & Shouyong Shi, 2009. "Efficient Search on the Job and the Business Cycle," NBER Working Papers 14905, National Bureau of Economic Research, Inc.
  5. Christopher A. Pissarides, 2007. "The Unemployment Volatility Puzzle: Is Wage Stickiness the Answer?," CEP Discussion Papers dp0839, Centre for Economic Performance, LSE.
  6. Eric Smith, 1999. "Search, Concave Production, and Optimal Firm Size," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(2), pages 456-471, April.
  7. Petrongolo, Barbara & Pissarides, Christopher, 2000. "Looking Into The Black Box: A Survey Of The Matching Function," CEPR Discussion Papers 2409, C.E.P.R. Discussion Papers.
  8. Ramey, Garey & Fujita, Shigeru, 2006. "Job Matching and Propagation," University of California at San Diego, Economics Working Paper Series qt53s671h7, Department of Economics, UC San Diego.
  9. Roberto M. Samaniego, 2008. "Entry, Exit and Business Cycles in a General Equilibrium Model," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(3), pages 529-541, July.
  10. Krause, Michael & Lubik, Thomas A., 2007. "Does intra-firm bargaining matter for business cycle dynamics?," Discussion Paper Series 1: Economic Studies 2007,17, Deutsche Bundesbank, Research Centre.
  11. Guido Menzio & Shouyong Shi, 2008. "Efficient Search on the Job and the Business Cycle, Second Version," PIER Working Paper Archive 09-010, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 28 Feb 2009.
  12. William Hawkins, 2015. "Bargaining with Commitment Between Workers and Large Firms," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 18(2), pages 350-364, April.
  13. Veronica Guerrieri & Robert Shimer & Randall Wright, 2010. "Adverse Selection in Competitive Search Equilibrium," Econometrica, Econometric Society, vol. 78(6), pages 1823-1862, November.
  14. Monique Ebell & Christian Haefke, 2008. "Product market deregulation and the U.S. employment miracle," LSE Research Online Documents on Economics 19569, London School of Economics and Political Science, LSE Library.
  15. Steven J. Davis & R. Jason Faberman & John Haltiwanger, 2009. "The establishment-level behavior of vacancies and hiring," Working Papers 09-14, Federal Reserve Bank of Philadelphia.
  16. Fujita, Shigeru & Nakajima, Makoto, 2016. "Worker flows and job flows: a quantitative investigation," Working Papers 16-3, Federal Reserve Bank of Philadelphia.
  17. Helpman, Elhanan & Itskhoki, Oleg, 2009. "Labor Market Rigidities, Trade, and Unemployment," CEPR Discussion Papers 7502, C.E.P.R. Discussion Papers.
  18. Bauer, Christian & Lingens, Jörg, 2010. "Individual vs. Collective Bargaining in the Large Firm Search Model," Discussion Papers in Economics 11315, University of Munich, Department of Economics.
  19. Andreas Hornstein & Per Krusell & Giovanni L. Violante, 2007. "Frictional Wage Dispersion in Search Models: A Quantitative Assessment," NBER Working Papers 13674, National Bureau of Economic Research, Inc.
  20. Steven J. Davis & John Haltiwanger & Ron Jarmin & Javier Miranda, 2007. "Volatility and Dispersion in Business Growth Rates: Publicly Traded versus Privately Held Firms," NBER Chapters, in: NBER Macroeconomics Annual 2006, Volume 21, pages 107-180 National Bureau of Economic Research, Inc.
  21. Marcelo Veracierto, 2004. "Firing Costs and Business Cycle Fluctuations," 2004 Meeting Papers 590, Society for Economic Dynamics.
  22. Shi, Shouyong, 2001. "Frictional Assignment. I. Efficiency," Journal of Economic Theory, Elsevier, vol. 98(2), pages 232-260, June.
  23. John Haltiwanger & Ron S. Jarmin & Javier Miranda, 2010. "Who Creates Jobs? Small vs. Large vs. Young," Working Papers 10-17, Center for Economic Studies, U.S. Census Bureau.
  24. Cahuc, Pierre & Marque, François & Wasmer, Etienne, 2004. "A Theory of Wages and Labour Demand with Intra-firm Bargaining and Matching Frictions," CEPR Discussion Papers 4605, C.E.P.R. Discussion Papers.
  25. Hagedorn, Marcus & Manovskii, Iourii, 2008. "The cyclical behavior of equilibrium unemployment and vacancies revisited," Working Paper Series 0853, European Central Bank.
  26. Philipp Kircher, 2009. "Efficiency of simultaneous search," LSE Research Online Documents on Economics 29703, London School of Economics and Political Science, LSE Library.
  27. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, vol. 95(1), pages 50-65, March.
  28. Lars A. Stole & Jeffrey Zwiebel, 1996. "Intra-firm Bargaining under Non-binding Contracts," Review of Economic Studies, Oxford University Press, vol. 63(3), pages 375-410.
  29. Moen, E.R., 1995. "Competitive Search Equilibrium," Memorandum 37/1995, Oslo University, Department of Economics.
  30. Robert Shimer, 2007. "Reassessing the Ins and Outs of Unemployment," NBER Working Papers 13421, National Bureau of Economic Research, Inc.
  31. Manolis Galenianos & Philipp Kircher, 2012. "On the game-theoretic foundations of competitive search equilibrium," LSE Research Online Documents on Economics 29707, London School of Economics and Political Science, LSE Library.
  32. Marcelo Veracierto, 2009. "Establishments dynamics, vacancies and unemployment: a neoclassical synthesis," Working Paper Series WP-09-14, Federal Reserve Bank of Chicago.
  33. Marc Blatter & Samuel Muehlemann & Samuel Schenker, 2008. "The Costs of Hiring Skilled Workers," Economics of Education Working Paper Series 0015, University of Zurich, Institute for Strategy and Business Economics (ISU), revised Nov 2009.
  34. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877.
  35. Jan Eeckhout & Philipp Kircher, 2010. "Sorting and Decentralized Price Competition," Econometrica, Econometric Society, vol. 78(2), pages 539-574, 03.
  36. Fabien Postel-Vinay & Giuseppe Moscarini, 2013. "Stochastic Search Equilibrium," 2013 Meeting Papers 159, Society for Economic Dynamics.
  37. Athanasios Geromichalos, 2010. "Directed Search and Optimal Production," Working Papers 1016, University of California, Davis, Department of Economics.
  38. Amir, R., . "Sensitivity analysis of multisector optimal economic dynamics," CORE Discussion Papers RP 1192, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  39. Oi, Walter Y. & Idson, Todd L., 1999. "Firm size and wages," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 33, pages 2165-2214 Elsevier.
  40. Mortensen, Dale T & Pissarides, Christopher, 1999. "New Developments in Models of Search in the Labour Market," CEPR Discussion Papers 2053, C.E.P.R. Discussion Papers.
  41. Faccini, Renato & Ortigueira, Salvador, 2010. "Labor-market volatility in the search-and-matching model: The role of investment-specific technology shocks," Journal of Economic Dynamics and Control, Elsevier, vol. 34(8), pages 1509-1527, August.
  42. Koeniger, Winfried & Prat, Julien, 2006. "Employment Protection, Product Market Regulation and Firm Selection," IZA Discussion Papers 1960, Institute for the Study of Labor (IZA).
  43. Leena Rudanko, 2010. "Aggregate and Idiosyncratic Risk in a Frictional Labor Market," Boston University - Department of Economics - Working Papers Series WP2010-054, Boston University - Department of Economics.
  44. Daron Acemoglu & Robert Shimer, 1998. "Holdups and Efficiency with Search Frictions," Working papers 98-14, Massachusetts Institute of Technology (MIT), Department of Economics.
  45. Belzil, Christian, 2000. "Job Creation and Job Destruction, Worker Reallocation, and Wages," Journal of Labor Economics, University of Chicago Press, vol. 18(2), pages 183-203, April.
  46. Lester, Benjamin, 2010. "Directed search with multi-vacancy firms," Journal of Economic Theory, Elsevier, vol. 145(6), pages 2108-2132, November.
  47. Cooper, Russell & Haltiwanger, John & Willis, Jonathan L., 2007. "Search frictions: Matching aggregate and establishment observations," Journal of Monetary Economics, Elsevier, vol. 54(Supplemen), pages 56-78, September.
  48. Arthur J. Hosios, 1990. "On The Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Oxford University Press, vol. 57(2), pages 279-298.
  49. Andolfatto, David, 1996. "Business Cycles and Labor-Market Search," American Economic Review, American Economic Association, vol. 86(1), pages 112-32, March.
  50. Charles Brown & James L. Medoff, 2003. "Firm Age and Wages," Journal of Labor Economics, University of Chicago Press, vol. 21(3), pages 677-698, July.
  51. Evans, David S., 1986. "The Relationship Between Firm Growth, Size, and Age: Estimates for 100 Manufacturing Industries," Working Papers 86-33, C.V. Starr Center for Applied Economics, New York University.
  52. Merz, Monika, 1995. "Search in the labor market and the real business cycle," Journal of Monetary Economics, Elsevier, vol. 36(2), pages 269-300, November.
  53. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
  54. Hawkins, William B. & Acemoglu, Daron, 2014. "Search with multi-worker firms," Theoretical Economics, Econometric Society, vol. 9(3), September.
  55. Moscarini, Giuseppe & Postel-Vinay, Fabien, 2009. "Large Employers Are More Cyclically Sensitive," IZA Discussion Papers 4014, Institute for the Study of Labor (IZA).
  56. Steven J. Davis & R. Jason Faberman & John C. Haltiwanger & Ian Rucker, 2008. "Adjusted Estimates of Worker Flows and Job Openings in JOLTS," NBER Working Papers 14137, National Bureau of Economic Research, Inc.
  57. Veronica Guerrieri, 2008. "Inefficient Unemployment Dynamics under Asymmetric Information," Journal of Political Economy, University of Chicago Press, vol. 116(4), pages 667-708, 08.
  58. Samuel Bentolila & Giuseppe Bertola, 1990. "Firing Costs and Labour Demand: How Bad is Eurosclerosis?," Review of Economic Studies, Oxford University Press, vol. 57(3), pages 381-402.
  59. William B. Hawkins, 2013. "Competitive Search, Efficiency, And Multiworker Firms," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 54(1), pages 219-251, 02.
  60. Cahuc, Pierre & Wasmer, Etienne, 2001. "Does Intrafirm Bargaining Matter In The Large Firm'S Matching Model?," Macroeconomic Dynamics, Cambridge University Press, vol. 5(05), pages 742-747, November.
  61. Pierre Cahuc & Winfried Koeniger, 2007. "Feature: Employment Protection Legislation," Economic Journal, Royal Economic Society, vol. 117(521), pages 185-188, 06.
  62. John Haltiwanger & Ron S. Jarmin & Javier Miranda, 2013. "Who Creates Jobs? Small versus Large versus Young," The Review of Economics and Statistics, MIT Press, vol. 95(2), pages 347-361, May.
  63. Burdett, Kenneth & Mortensen, Dale T, 1998. "Wage Differentials, Employer Size, and Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 257-73, May.
  64. Dale T. Mortensen, 2009. "Wage Dispersion in the Search and Matching Model with Intra-Firm Bargaining," NBER Working Papers 15033, National Bureau of Economic Research, Inc.
  65. Peters, Michael, 1991. "Ex Ante Price Offers in Matching Games Non-steady States," Econometrica, Econometric Society, vol. 59(5), pages 1425-54, September.
  66. Michael W. L. Elsby, 2008. "Marginal Jobs, Heterogeneous Firms, & Unemployment Flows," NBER Working Papers 13777, National Bureau of Economic Research, Inc.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:knz:dpteco:1101. 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: (Dr. Lisa Green)

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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.