Precautionary Demand for Labor in Search Equilibrium
This paper studies firmsf job creation decisions in a labor market with search frictions. A simple labor market search model is developed in which a firm can search for a second employee while producing with a first worker. A firm expands employment even if the instantaneous payoff to a large firm is less than that of staying small--a firm has a precautionary motive to expand its size. In addition, this motive is enhanced by a greater market tightness. Because of this effect, firmsf decisions become interdependent--a firm creates a vacancy if it expects other firms to do the same, creating strategic complementarity among firms and thereby self-fulfilling multiple equilibria.
|Date of creation:||Oct 2007|
|Date of revision:|
|Contact details of provider:|| Web page: http://www.econ.osaka-u.ac.jp/|
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