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Equilibrium Unemployment in a Generalized Search Model

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  • William Hawkins

    (University of Rochester)

  • Daron Acemoglu

    (Massachusetts Institute of Technology)

Abstract

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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  • William Hawkins & Daron Acemoglu, 2010. "Equilibrium Unemployment in a Generalized Search Model," 2010 Meeting Papers 1040, Society for Economic Dynamics.
  • Handle: RePEc:red:sed010:1040
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    References listed on IDEAS

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    Cited by:

    1. William Hawkins & Daron Acemoglu, 2007. "Equilibrium Unemployment in a Generalized Search Model," 2007 Meeting Papers 384, Society for Economic Dynamics.
    2. Felbermayr, Gabriel & Prat, Julien & Schmerer, Hans-Jörg, 2011. "Globalization and labor market outcomes: Wage bargaining, search frictions, and firm heterogeneity," Journal of Economic Theory, Elsevier, vol. 146(1), pages 39-73, January.
    3. Leo Kaas & Philipp Kircher, 2015. "Efficient Firm Dynamics in a Frictional Labor Market," American Economic Review, American Economic Association, vol. 105(10), pages 3030-3060, October.
    4. Russell Cooper & John Haltiwanger & Jonathan L. Willis, 2007. "Implications of Search Frictions: Matching Aggregate and Establishment-level Observations," NBER Working Papers 13115, National Bureau of Economic Research, Inc.
    5. Aysegul Sahin & Bart Hobijn, 2008. "Wage Determination and Firm Size Dynamics," 2008 Meeting Papers 356, Society for Economic Dynamics.
    6. Gabriel Felbermayr & Julien Prat, 2011. "Product Market Regulation, Firm Selection, And Unemployment," Journal of the European Economic Association, European Economic Association, vol. 9(2), pages 278-317, April.
    7. Markus Poschke, 2012. "The Labor Market, the Decision to Become an Entrepreneur, and the Firm Size Distribution," Cahiers de recherche 11-2012, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
    8. Bart Hobijn & Ayşegül Şahin, 2013. "Firms And Flexibility," Economic Inquiry, Western Economic Association International, vol. 51(1), pages 922-940, January.
    9. Michael W. L. Elsby, 2008. "Marginal Jobs, Heterogeneous Firms, & Unemployment Flows," NBER Working Papers 13777, National Bureau of Economic Research, Inc.
    10. Bauer, Christian & Lingens, Jörg, 2010. "Individual vs. Collective Bargaining in the Large Firm Search Model," Discussion Papers in Economics 11315, University of Munich, Department of Economics.

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