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A Theory of Production, Matching, and Distribution

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  • Sephorah Mangin

Abstract

This paper presents a unified approach to production, matching, and distribution in an environment with labor market frictions. I use competing auctions as both a wage determination mechanism and a microfoundation for an aggregate production and matching technology. For any well-behaved distribution of firm productivities, I show that the aggregate production function exhibits standard neoclassical properties and an elasticity of substitution between capital and labor that is always less than or equal to one. If the distribution is Pareto or power law, this function is particularly tractable. In general, factor income shares vary with the degree of competition between firms to hire workers, the value of non-market activity, and characteristics of the underlying firm productivity distribution. Unlike Diamond-Mortensen-Pissarides style search models with Nash bargaining, production and distribution are endogenously tightly connected: the economy satisfies a generalized version of the Hosios condition.

Suggested Citation

  • Sephorah Mangin, 2015. "A Theory of Production, Matching, and Distribution," Monash Economics Working Papers 27-15, Monash University, Department of Economics.
  • Handle: RePEc:mos:moswps:2015-27
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    Cited by:

    1. Ezra Oberfield & Devesh Raval, 2021. "Micro Data and Macro Technology," Econometrica, Econometric Society, vol. 89(2), pages 703-732, March.
    2. Mangin, Sephorah & Sedláček, Petr, 2018. "Unemployment and the labor share," Journal of Monetary Economics, Elsevier, vol. 94(C), pages 41-59.
    3. Mangin, Sephorah & Julien, Benoît, 2021. "Efficiency in search and matching models: A generalized Hosios condition," Journal of Economic Theory, Elsevier, vol. 193(C).
    4. Gabaix, Xavier & Laibson, David & Li, Deyuan & Li, Hongyi & Resnick, Sidney & de Vries, Casper G., 2016. "The impact of competition on prices with numerous firms," Journal of Economic Theory, Elsevier, vol. 165(C), pages 1-24.
    5. DeCanio, Stephen J., 2016. "Robots and humans – complements or substitutes?," Journal of Macroeconomics, Elsevier, vol. 49(C), pages 280-291.

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    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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