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VIOLANTE Gianluca (Princeton University) “Firm and Worker Dynamics in a Frictional Labor Market”
September 30, 12:15 pm - 1:30 pm
Time: 12:15pm – 13:30 pm
Date: 30th of September 2019
Place: Room 3001
VIOLANTE Gianluca (Princeton) “Firm and Worker Dynamics in a Frictional Labor Market”
Abstract : This paper develops a continuous-time random-matching model of a frictional labor market with firm and worker dynamics. Multi-worker firms choose whether to shrink or expand their employment in response to productivity shocks to their decreasing returns to scale technology. Growing entails posting costly vacancies, which are filled either by the unemployed or by employees poached from other firms. Firms also choose optimally when to enter and exit the market. Tractability is obtained by proving that, under a parsimonious set of assumptions, all worker and firm decisions can be characterized by comparisons between marginal surpluses which only depend on firm’s productivity and size. As frictions vanish, the model converges to a standard competitive model of firm dynamics. A parameterized version of the model yields longitudinal and cross-sectional patterns of net poaching in response to productivity shocks that are in line with the data. The model also generates a drop in job-to-job transitions as firm entry declines, offering an interpretation to U.S. labor market dynamics around the Great Recession. All these outcomes are a reflection of the job ladder in marginal surplus that emerges in equilibrium.