Wages and Employment Persistence with Multi-worker Firms
نویسندگان
چکیده
We present a generalization of the standard random-search model of unemployment in which firms hire multiple workers and in which the hiring process is time-consuming as well as costly. We follow Stole and Zwiebel (1996a,b) and assume that wages are determined by continuous bargaining between the firm and its employees. This generates a non-trivial dispersion of firm sizes; when firms’ production technologies exhibit decreasing returns to labor, it also generates wage dispersion, even though all firms and all workers are ex ante identical. We characterize the steady-state equilibrium of the model; some important special cases are characterized in closed form. We also characterize the out-of-steady state dynamics of employment and wages in response to productivity shocks. Firms can respond to shocks on both an intensive margin (a change in the intensity of vacancy posting of incumbent firms) and extensive margin (a change in the number of active firms); we show that both margins, as well as whether there are decreasing returns to labor at the firm level, are important for the qualitative behavior of the unemployment rate and of the distribution of employment and wages across firms. When there are decreasing returns to labor and free entry of firms, the responses of unemployment and of the vacancy to unemployment ratio to a shock to labor productivity are significantly more persistent than in the Mortensen-Pissarides benchmark. The persistence is caused by a novel mechanism arising from an interaction of two key elements of our model: new entrant firms are small for some time because hiring is time-consuming and they pay high wages because of bargaining; this drives up wages for other firms and slows down job creation. JEL Codes: E24, E32, J31, J64
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