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

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  • Giuseppe Bertola
  • Ricardo J. Caballero

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.

Suggested Citation

  • Giuseppe Bertola & Ricardo J. Caballero, 1994. "Cross-Sectional Efficiency and Labour Hoarding in a Matching Model of Unemployment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 61(3), pages 435-456.
    • Handle: RePEc:oup:restud:v:61:y:1994:i:3:p:435-456.
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    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs

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    1. Quantitative Macroeconomics and Real Business Cycles (QM&RBC)

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