Riccardo Faini CEIS Seminars

FALL 2014

Efficient Firm Dynamics in a Frictional Labor Market
April, 13rd 2012 (12:00-13:30)
Aula B - Primo piano

Leo Kaas (University of Konstanz) 

Riccardo Faini CEIS Seminars

 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, job flows, and pay. 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.