The Efficiency of Surplus Sharing in Sequential Labor and Goods Markets

Nicolas Petrosky-Nadeau, Etienne Wasmer and Philippe Weil
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Nicolas Petrosky-Nadeau: FRB San Francisco

No 622, 2018 Meeting Papers from Society for Economic Dynamics

Abstract: What is the optimal sharing of value added between consumers, producers, and labor? We study the constrained efficiency properties of a model with search frictional labor and goods markets. The social planner's allocation seeks to minimizes turnover costs in all markets. The decentralized allocation constrained efficient if Hosios conditions hold in each of the labor and goods markets. Deviations from Hosios in the labor market can lead to either over or under hiring, and either excess tightness or slack in the goods market. Deviations from Hosios in the goods market lead to either excess or insufficient tightness in the goods market, and always lead to lower labor market tightness. A calibration of the model to the US economy indicates restoring efficiency to the goods market would lower long unemployment and markups in the goods market.

Date: 2018
New Economics Papers: this item is included in nep-dge
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