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Labor Specialization as a Source of Market Frictions

Maria Molina-Domene

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: This paper investigates why labor specialization brings additional frictions to the labor market. The intuition is that labor specialized firms rely on complementarity and firm-specific human capital, assigning high value to the worker-employer match. Consistent with employees' importance, the findings show that specialized firms preserve their workforce: these firms labor hoard and increase wages during slow-downs. Additionally, when specialized firms unexpectedly face a labor supply shock | albeit managing to decrease the wages of the remaining co-workers, they become less productive. Overall, the empirical evidence suggests that frictions introduce bilateral monopoly rents.

Keywords: labor specialization; market frictions; division of labor; human capital (search for similar items in EconPapers)
JEL-codes: J24 J42 J63 (search for similar items in EconPapers)
Date: 2018-10
New Economics Papers: this item is included in nep-bec, nep-hrm and nep-lma
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