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Equilibrium Unemployment in a Generalized Search Model

  • William Hawkins

    (University of Rochester)

  • Daron Acemoglu

    (Massachusetts Institute of Technology)

We present a generalization of the standard Diamond-Mortensen-Pissarides undirected-search model of unemployment in which the hiring process is time-consuming as well as costly. We follow Stole and Zwiebel (1996a,b) and assume that wages are determined by continuous bargaining between the firm and its employees. This generates a non-trivial dispersion of firm sizes; when firms' production technologies exhibit decreasing returns to labor, it also generates wage dispersion, even though all firms and all workers are ex ante identical. We characterize the steady-state equilibrium of the model; some important special cases are characterized in closed form. We characterize the out-of-steady state dynamics of employment and wages of the economy in response to productivity shocks. A feature of the model is the ability of the economy to respond to shocks on both an intensive margin (a change in the intensity of vacancy posting of incumbent firms) as well as an extensive margin (a change in the number of active firms); we show that both margins, as well whether there are decreasing returns to labor at the firm level, are important for the qualitative behavior of the unemployment rate and of the distribution of employment and wages across firms.

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Paper provided by Society for Economic Dynamics in its series 2010 Meeting Papers with number 1040.

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Date of creation: 2010
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Handle: RePEc:red:sed010:1040
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  1. Andolfatto, David, 1996. "Business Cycles and Labor-Market Search," American Economic Review, American Economic Association, vol. 86(1), pages 112-32, March.
  2. Hagedorn, Marcus & Manovskii, Iourii, 2008. "The cyclical behavior of equilibrium unemployment and vacancies revisited," Working Paper Series 0853, European Central Bank.
  3. Smith, Eric, 1994. "Search, Concave Production, and Optimal Firm Size," CEPR Discussion Papers 882, C.E.P.R. Discussion Papers.
  4. Steven J. Davis & John Haltiwanger & Ron Jarmin & Javier Miranda, 2006. "Volatility and Dispersion in Business Growth Rates: Publicly Traded versus Privately Held Firms," NBER Working Papers 12354, National Bureau of Economic Research, Inc.
  5. William Hawkins & Daron Acemoglu, 2010. "Equilibrium Unemployment in a Generalized Search Model," 2010 Meeting Papers 1040, Society for Economic Dynamics.
  6. Daron Acemoglu & Pol Antras & Elhanan Helpman, 2005. "Contracts and the Division of Labor," Harvard Institute of Economic Research Working Papers 2074, Harvard - Institute of Economic Research.
  7. van Ours, J.C. & Ridder, G., 1992. "Vacancies and recruitment of new employees," Other publications TiSEM 9acc708a-0885-46a2-aef5-7, Tilburg University, School of Economics and Management.
  8. repec:ner:tilbur:urn:nbn:nl:ui:12-142178 is not listed on IDEAS
  9. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, vol. 95(1), pages 50-65, March.
  10. van Ours, Jan & Ridder, Geert, 1992. "Vacancies and the Recruitment of New Employees," Journal of Labor Economics, University of Chicago Press, vol. 10(2), pages 138-55, April.
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