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Precautionary Demand for Labor in Search Equilibrium

Author

Listed:
  • Noritaka Kudoh

    (Department of Economics, Hokkaido University)

  • Masaru Sasaki

    (Department of Economics, Osaka University)

Abstract

This paper studies firms f 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, firms f 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.

Suggested Citation

  • Noritaka Kudoh & Masaru Sasaki, 2007. "Precautionary Demand for Labor in Search Equilibrium," Discussion Papers in Economics and Business 07-34, Osaka University, Graduate School of Economics.
    • Handle: RePEc:osk:wpaper:0734
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    References listed on IDEAS

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    More about this item

    Keywords

    labor demand; firm size distribution.;

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

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