Econometrica

Journal Of The Econometric Society

An International Society for the Advancement of Economic
Theory in its Relation to Statistics and Mathematics

Edited by: Guido W. Imbens • Print ISSN: 0012-9682 • Online ISSN: 1468-0262

Econometrica: Jul, 2022, Volume 90, Issue 4

Firm and Worker Dynamics in a Frictional Labor Market

https://doi.org/10.3982/ECTA17955
p. 1425-1462

Adrien Bilal, Niklas Engbom, Simon Mongey, Giovanni L. Violante

This paper integrates the classic theory of firm boundaries, through span of control or taste for variety, into a model of the labor market with random matching and on‐the‐job search. Firms choose when to enter and exit, whether to create vacancies or destroy jobs in response to shocks, and Bertrand‐compete to hire and retain workers. Tractability is obtained by proving that, under a parsimonious set of assumptions, all worker and firm decisions are characterized by their joint surplus, which in turn only depends on firm productivity and size. The job ladder in marginal surplus that emerges in equilibrium determines net poaching patterns by firm characteristics that are in line with the data. As frictions vanish, the model converges to a standard competitive model of firm dynamics. The combination of firm dynamics and search frictions allows the model to: (i) quantify the misallocation cost of frictions; (ii) replicate elusive life‐cycle growth profiles of superstar firms; and (iii) make sense of the failure of the job ladder around the Great Recession as a result of the collapse of firm entry.


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Supplemental Material

Supplement to "Firm and Worker Dynamics in a Frictional Labor Market"

Adrien Bilal, Niklas Engbom, Simon Mongey, and Giovanni L. Violante

This zip file contains the replication files for the manuscript.  It also contains an extra supplemental appendix within the zip file.

Supplement to "Firm and Worker Dynamics in a Frictional Labor Market"

Adrien Bilal, Niklas Engbom, Simon Mongey, and Giovanni L. Violante

This online appendix contains material not found within the manuscript.