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 timeconsuming as well as costly. We follow Zwiebel (1996a, 1996b) and assume that wages are determined by continuous bargaining between the firm and its employees. The model generates a nontrivial dispersion of firm sizes; when firms' production technologies exhibit decreasing returns to labor, it also generates wage dispersion, even when all firms and all workers are ex ante identical. We characterize the steady-state equilibrium and show that, with a suitably chosen distribution of ex ante heterogeneity across firms, it is consistent with several important stylized facts about the joint distribution of firm size, firm growth, and wages in the U.S. economy. We also conduct a numerical investigation of the outof-steady-state dynamics of our model. We find that the responses of unemployment and of the vacancy-to-unemployment ratio to a shock to labor productivity can be somewhat more persistent than in the Mortensen-Pissarides benchmark where each firm employs a single worker.
I study competitive search equilibrium in an environment where firms operate a decreasing‐returns production technology and hire multiple workers simultaneously. Firms post wages, possibly several of them. The equilibrium can feature wage dispersion even though all firms and workers are ex ante identical. Unlike the benchmark where firms hire a single worker, hiring is constrained inefficient. Efficiency requires that firms commit to the number of hires, pay all applicants, or pay wages that depend on the number of applicants. Under wage‐posting, the inefficiency is highest at intermediate levels of labor market tightness.
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I study bargaining between workers and large firms when commitment to long-term contracts is feasible. The marginal surplus associated with a match is split in a pre-determined ratio, analogously to generalized Nash bargaining. Commitment avoids the over-hiring inefficiency identified by Stole and Zwiebel (1996a,b) and Smith (1999). However, even under the Hosios (1990) condition, the equilibrium is still not constrained efficient since large firms search too intensively relative to small firms. If workers can direct their search to firms by size, or if firms can hire workers instantaneously at constant marginal cost, the equilibrium is constrained efficient if the Hosios condition applies. The pattern of growth rates of firms by size can be used to identify how firms bargain with workers.JEL Codes: E24, J31, J64.
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