Directed search with multi-vacancy firms

This paper studies how firm size, firm growth, and market structure affect matching between workers and firms, and resulting levels of employment, wages, and output. Building on the directed search literature, I construct and analyze a framework in which both the number of firms and the distribution of vacancies across firms are determined endogenously, wages play an allocative role in the matching process, and the frictions inherent in this process derive from the equilibrium behavior of workers and firms. The model generates a rich set of testable implications for cross-sectional variation in matching efficiency, as well as the dynamic behavior of vacancies and unemployment. Moreover, allowing for ex-ante heterogeneity across firms, I show that the model can easily and naturally generate the relationship between firm size, wages, profitability, and hiring that is observed in the data.