 Post-pandemic recovery: Search and matching, market power, and endogenous labor demandKonstantin Platonov Economic Modelling, 2025, vol. 151, issue C Abstract: Following the COVID-19 pandemic, United States (US) output rebounded quickly, labor productivity rose above pre-pandemic levels, profit rates increased, and the labor market tightened, all despite high unemployment. These observations can be reconciled in a search and matching model of the labor market with two new assumptions of strong firm market power and endogenous labor demand. Market power encourages firm entry when prices rise, while endogenous labor demand enables firms to adapt to shocks rather than shut down. Two regimes arise: one with weak market power, representing the pre-pandemic era and another with strong market power, explaining the post-pandemic recovery. Under strong market power, firm entry drives recovery following recessions, the labor market becomes tight, wages and producer prices rise, and the average firm size shrinks, which is consistent with the post-pandemic data. This study demonstrates how a typical business cycle can be reconciled with US post-pandemic recovery within a unified model, highlighting the non-trivial role of firms’ market power in shaping macroeconomic outcomes. Keywords: COVID-19; Labor productivity; Firm entry; Unemployment; Search and matching; Market power (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:151:y:2025:i:c:s0264999325001786 DOI: 10.1016/j.econmod.2025.107183 Access Statistics for this article Economic Modelling is currently edited by S. Hall and P. Pauly More articles in Economic Modelling from Elsevier |
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