Precautionary Demand for Labor in Search Equilibrium

Noritaka Kudoh and Masaru Sasaki ()
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Masaru Sasaki: Department of Economics, Osaka University

No 07-34, Discussion Papers in Economics and Business from Osaka University, Graduate School of Economics

Abstract: This paper studies firms f job creation decisions in a labor market with search frictions. A simple labor market search model is developed in which a firm can search for a second employee while producing with a first worker. A firm expands employment even if the instantaneous payoff to a large firm is less than that of staying small--a firm has a precautionary motive to expand its size. In addition, this motive is enhanced by a greater market tightness. Because of this effect, firms f decisions become interdependent--a firm creates a vacancy if it expects other firms to do the same, creating strategic complementarity among firms and thereby self-fulfilling multiple equilibria.

Keywords: labor demand; firm size distribution. (search for similar items in EconPapers)
JEL-codes: E24 J23 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2007-10
New Economics Papers: this item is included in nep-bec, nep-dge, nep-lab and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:osk:wpaper:0734

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