Efficient firm dynamics in a frictional labor market

Philipp Kircher and Leo Kaas

No 160, 2013 Meeting Papers from Society for Economic Dynamics

Abstract: We develop and analyze a labor search model in which heterogeneous firms operate under decreasing returns and compete for labor by publicly posting long-term contracts. Firms achieve faster growth 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 and job flows, and it generates a sluggish response of the labor market to aggregate shocks. In contrast to existing 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.

Date: 2013
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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 (2011)
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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