Efficient Firm Dynamics in a Frictional Labor Market
- (pp. 3030-60)
Abstract
We develop and analyze a labor market model in which heterogeneous firms operate under decreasing returns and compete for labor by posting long-term contracts. Firms achieve faster growth by offering higher lifetime wages, which allows them to fill vacancies with higher probability, consistent with recent empirical findings. The model also captures several other regularities about firm size, job flows, and pay, and generates sluggish aggregate dynamics of labor market variables. In contrast to existing bargaining models with large firms, efficiency obtains and the model allows a tractable characterization over the business cycle. (JEL E24, J64, L11)Citation
Kaas, Leo, and Philipp Kircher. 2015. "Efficient Firm Dynamics in a Frictional Labor Market." American Economic Review, 105 (10): 3030-60. DOI: 10.1257/aer.20131702Additional Materials
JEL Classification
- E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
- J64 Unemployment: Models, Duration, Incidence, and Job Search
- L11 Production, Pricing, and Market Structure; Size Distribution of Firms