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Firm Dynamics With Frictional Product And Labor Markets

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  • Leo Kaas
  • Bihemo Kimasa

Abstract

We analyze the joint dynamics of prices, productivity, and employment across firms, building a dynamic equilibrium model of heterogeneous firms who compete for workers and customers in frictional labor and product markets. Using panel data on prices and output for German manufacturing firms, the model is calibrated to evaluate the quantitative contributions of productivity and demand for the labor market. Product market frictions decisively dampen the firms' employment adjustments to productivity shocks. We further analyze the impact of aggregate shocks to the first and second moments of productivity and demand and relate them to business‐cycle features in our data.

Suggested Citation

  • Leo Kaas & Bihemo Kimasa, 2021. "Firm Dynamics With Frictional Product And Labor Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 62(3), pages 1281-1317, August.
    • Handle: RePEc:wly:iecrev:v:62:y:2021:i:3:p:1281-1317
    DOI: 10.1111/iere.12510
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    Cited by:

    1. Kovalenko, Tim, 2021. "Uncertainty shocks and employment fluctuations in Germany: The role of establishment size," Discussion Papers 119, Friedrich-Alexander University Erlangen-Nuremberg, Chair of Labour and Regional Economics.
    2. Alex Clymo, 2019. "Dispersion Over the Business Cycle: Productivity versus Demand," 2019 Meeting Papers 1125, Society for Economic Dynamics.
    3. Pau Roldan & Sophia Gilbukh, 2017. "Firm Dynamics and Pricing under Customer Capital Accumulation," 2017 Meeting Papers 1235, Society for Economic Dynamics.
    4. Paule-Paludkiewicz, Hannah, 2024. "Does the right to work part-time affect mothers' labor market outcomes?," Discussion Papers 12/2024, Deutsche Bundesbank.
    5. Paule-Paludkiewicz, Hannah, 2020. "Does the Right to Work Part-Time Affect Mothers' Labor Market Outcomes?," VfS Annual Conference 2020 (Virtual Conference): Gender Economics 224556, Verein für Socialpolitik / German Economic Association.
    6. Filippo Biondi & Sergio Inferrera & Matthias Mertens & Javier Miranda, 2023. "Declining Business Dynamism in Europe: The Role of Shocks, Market Power, and Technology," Jena Economics Research Papers 2023-011, Friedrich-Schiller-University Jena.
    7. Gartner, Hermann & Stüber, Heiko, 2019. "Strukturwandel am Arbeitsmarkt seit den 70er Jahren: Arbeitsplatzverluste werden durch neue Arbeitsplätze immer wieder ausgeglichen (Structural change on the labor market since the 70s : The destructi," IAB-Kurzbericht 201913, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    8. Roldan-Blanco, Pau & Gilbukh, Sonia, 2021. "Firm dynamics and pricing under customer capital accumulation," Journal of Monetary Economics, Elsevier, vol. 118(C), pages 99-119.
    9. Tim Kovalenko, 2021. "Uncertainty shocks and employment fluctuations in Germany: the role of establishment size," Working Papers 212, Bavarian Graduate Program in Economics (BGPE).

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    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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