Firm entry, endogenous wage moderation, and labor market dynamics

Andrea Colciago, Stefano Fasani and Lorenza Rossi

European Economic Review, 2025, vol. 172, issue C

Abstract: Profit-seeking is a key driver of new business creation, which, in turn, significantly influences unemployment dynamics. This paper uses US data to estimate the joint responses of firm entry, profits, unemployment, hours worked, and other aggregates to commonly studied supply shocks. Our analysis finds a positive correlation between firm entry, profits, and total hours worked, alongside a negative correlation with the unemployment rate. We develop and estimate a general equilibrium model that captures these dynamics.

Keywords: Entry; Unemployment; Bayesian analysis; Search and matching (search for similar items in EconPapers)
JEL-codes: C5 E32 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:172:y:2025:i:c:s001429212400268x

DOI: 10.1016/j.euroecorev.2024.104939

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