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Cross Sectional Efficiency and Labor Hoarding in an Matching Model of Unemployment

  • Giuseppe Bertola
  • Ricardo J. Caballero

We study positive and normative aspects of steady-state equilibrium in a market where firms of endogenous size experience idiosyncratic shocks and undergo a costly search process to hire their workers. The stylized model we propose highlights interactions between job-security provisions and sectoral shocks in determining the natural rate of unemployment, the allocation of labor, and the extent of labor hoarding, and rationalizes cross-sectional asymmetries of gross employment flows at the firm level. In our model, where productivity and search costs are dynamically heterogeneous across firms, decentralized wage bargains imply important cross-sectional inefficiencies, which overshadow the static search inefficiencies on which simpler models focus.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4472.

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Date of creation: Sep 1993
Date of revision:
Publication status: published as Review of Economic Studies, vol 61, no 3, pp 435-456, July 1994
Handle: RePEc:nbr:nberwo:4472
Note: EFG
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  1. Quantitative Macroeconomics and Real Business Cycles (QM&RBC)

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