Efficient Firm Dynamics in a Frictional Labor Market

Leo Kaas and Philipp Kircher

No 5452, IZA Discussion Papers from Institute of Labor Economics (IZA)

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: multi-worker firms; job creation and job destruction; labor market search (search for similar items in EconPapers)
JEL-codes: E24 J64 L11 (search for similar items in EconPapers)
Pages: 57 pages
Date: 2011-01
New Economics Papers: this item is included in nep-bec, nep-dge, nep-lab and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (26)

Published - revised version published in: American Economic Review, 2015, 105(10), 3030-60

Downloads: (external link)
https://docs.iza.org/dp5452.pdf (application/pdf)

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)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:iza:izadps:dp5452

Ordering information: This working paper can be ordered from
IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany

Access Statistics for this paper

More papers in IZA Discussion Papers from Institute of Labor Economics (IZA) IZA, P.O. Box 7240, D-53072 Bonn, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Holger Hinte ().