A theory of production, matching, and distribution

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Abstract

This paper develops a search-theoretic model of the labor market in which heterogeneous firms compete directly to hire unemployed workers. This process of direct competition simultaneously determines both the expected match output and workers’ effective bargaining power. The framework delivers a unified aggregate production and matching technology, and firms are paid both productivity rents and matching rents. Both the curvature of the endogenous production technology and the distribution of output between workers and firms are influenced by properties of the underlying firm productivity distribution, particularly the tail index (a measure of tail fatness). For example, if the firm productivity distribution is Pareto, the labor share is decreasing in its tail index if the value of matching rents is not too high.

Original languageEnglish
Pages (from-to)376-409
Number of pages34
JournalJournal of Economic Theory
Volume172
DOIs
Publication statusPublished - 1 Nov 2017

Keywords

  • Aggregate production function
  • Bargaining power
  • Competing auctions
  • Competitive search
  • Directed search
  • Factor shares
  • Labor share

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