Cross-Sectional Efficiency and Labour Hoarding in a Matching Model of Unemployment

Giuseppe Bertola and Ricardo Caballero ()

The Review of Economic Studies, 1994, vol. 61, issue 3, 435-456

Abstract: We study positive and normative aspects of steady-state equilibrium in a market where firms of endogenous size experience idiosyncratic shocks and undergo a costly search process to hire their workers. The stylized model we propose highlights interactions between job-security provisions and sectoral shocks in determining the natural rate of unemployment, the allocation of labour, and the extent of labour hoarding, and rationalizes cross-sectional asymmetries of gross employment flows at the firm level. In our model, where productivity and search costs are dynamically heterogeneous across firms, decentralized wage bargains imply important cross-sectional inefficiencies, which overshadow the static search inefficiencies on which simpler models focus.

Date: 1994
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Working Paper: Cross Sectional Efficiency and Labor Hoarding in an Matching Model of Unemployment (1993)
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Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:61:y:1994:i:3:p:435-456.

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