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Endogenous Market Structures and Labor Market Dynamics (New version)

  • Andrea Colciago

    (Department of Economics, University of Milano Bicocca)

  • Lorenza Rossi


    (Department of Economics and Quantitative Methods, University of Pavia)

We propose a model characterized by strategic interactions among an endogenous number of producers and search and matching frictions in the labor market. In line with U.S. data: (i) new firms account for a relatively small share of overall employment, but they create a relevant fraction of new jobs; (ii) firms’ entry is procyclical; (iii) price mark ups are countercyclical, while aggregate profits are procyclical. In response to a technology shock the labor share decreases on impact and overshoots its long run level. Also the propagation on labor market variables is stronger than in the standard search model. We argue that the countercyclicality of the price mark up is the key mechanism for our results.

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Paper provided by University of Pavia, Department of Economics and Quantitative Methods in its series Quaderni di Dipartimento with number 155.

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Length: 42 pages
Date of creation: Nov 2011
Date of revision:
Handle: RePEc:pav:wpaper:155
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