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Search, Concave Production, and Optimal Firm Size

Author

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  • Eric Smith

    (University of Essex)

Abstract

This paper demonstrates that in a free entry search and bargaining economy with concave production firms over-employ. Bargaining allows the worker's wage to depend upon marginal productivity. As such, with strictly concave production, the wage declines as firms employ more labour. Firms react to this declining wage function by choosing an inefficiently large number of workers. However, in equilibrium, fewer firms are likely to enter causing aggregate employment and vacancies to fall. (Copyright: Elsevier)

Suggested Citation

  • Eric Smith, 1999. "Search, Concave Production, and Optimal Firm Size," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(2), pages 456-471, April.
    • Handle: RePEc:red:issued:v:2:y:1999:i:2:p:456-471
    DOI: 10.1006/redy.1998.0056
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    References listed on IDEAS

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    1. David Card, 1992. "Using Regional Variation in Wages to Measure the Effects of the Federal Minimum Wage," ILR Review, Cornell University, ILR School, vol. 46(1), pages 22-37, October.
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    3. Berman, Eli, 1997. "Help Wanted, Job Needed: Estimates of a Matching Function from Employment Service Data," Journal of Labor Economics, University of Chicago Press, vol. 15(1), pages 251-292, January.
    4. Martin Chalkley, 1991. "Monopsony Wage Determination and Multiple Unemployment Equilibria in a Non-Linear Search Model," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(1), pages 181-193.
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    More about this item

    Keywords

    search; Bargaining; labor hoarding; minimum wages; unions;
    All these keywords.

    JEL classification:

    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General

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