A Unified Production and Matching Function: Implications for Factor Shares
This paper develops microfoundations for a unified aggregate production function. Labor market frictions are naturally built into the aggregate production function because matching and production are two aspects of a single process. Entrepreneurs with heterogeneous productivity levels hire capital and compete for workers. If no entrepreneurs approach a given worker he is unemployed, otherwise the entrepreneur with the highest productivity hires the worker. The model provides new insights into the behavior of factor shares. If the entrepreneurs' productivity distribution is Pareto, the aggregate production function is Cobb-Douglas only in the limit as frictional unemployment disappears. In this limiting case, factors are paid their marginal product and factor shares are constant. Outside this limit, factor shares are not generally constant, enabling us to examine their behavior. A key prediction of the model is that labor's share is counter-cyclical provided that workers' outside option is sufficiently high.
|Date of creation:||2012|
|Date of revision:|
|Contact details of provider:|| Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA|
Web page: http://www.EconomicDynamics.org/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ríos-Rull, José-Víctor & Santaeulàlia-Llopis, Raül, 2010. "Redistributive shocks and productivity shocks," Journal of Monetary Economics, Elsevier, vol. 57(8), pages 931-948, November.
When requesting a correction, please mention this item's handle: RePEc:red:sed012:500. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann)
If references are entirely missing, you can add them using this form.