Faculty of Economics and Business Administration Publications Database

Efficient Firm Dynamics in a Frictional Labor Market

Kircher, Philipp
Volume: 105
Pages: 3030 - 3060
Month: October
ISSN-Print: 0002-8282
Link External Source: Online Version
Year: 2015
Keywords: Labor market search; Multi-worker firms; Job creation and job destruction

We develop and analyze a labor market model in which heterogeneous firms operate under decreasing returns and compete for labor by posting long-term contracts. Firms achieve faster growth by offering higher lifetime wages, which allows them to fill vacancies with higher probability, consistent with recent empirical findings. The model also captures several other regularities about firm size, job flows, and pay, and generates sluggish aggregate dynamics of labor market variables. In contrast to existing bargaining models with large firms, efficiency obtains and the model allows a tractable characterization over the business cycle. (JEL E24, J64, L11).