Efficient Firm Dynamics in a Frictional Labor Market

Leo Kaas and Philipp Kircher

No 3336, CESifo Working Paper Series from CESifo

Abstract: The introduction of firm size into labor search models raises the question how wages are set when average and marginal product differ. We develop and analyze an alternative to the existing bargaining framework: Firms compete for labor by publicly posting long–term contracts. In such a competitive search setting, firms achieve faster growth not only by posting more vacancies, but also by offering higher lifetime wages that attract more workers which allows to fill vacancies with higher probability, consistent with empirical regularities. The model also captures several other observations about firm size, job flows, and pay. In contrast to bargaining models, efficiency obtains on all margins of job creation and destruction, both with idiosyncratic and aggregate shocks. The planner solution allows a tractable characterization which is useful for computational applications.

Keywords: labor market search; multi-worker firms; job creation and job destruction (search for similar items in EconPapers)
JEL-codes: E24 J64 L11 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (20)

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Related works:
Journal Article: Efficient Firm Dynamics in a Frictional Labor Market (2015)
Working Paper: Efficient Firm Dynamics in a Frictional Labor Market (2015)
Working Paper: Efficient firm dynamics in a frictional labor market (2013)
Working Paper: Efficient Firm Dynamics in a Frictional Labor Market (2011)
Working Paper: Efficient Firm Dynamics in a Frictional Labor Market (2011)
Working Paper: Efficient Firm Dynamics in a Frictional Labor Market (2010)
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