Arbeitspapier

Efficiency and labor market dynamics in a model of labor selection

We characterize efficient allocations and business cycle fluctuations in a labor selection model. Due to forward-looking hiring and labor supply decisions, efficiency entails both static and intertemporal margins. We develop welfare-relevant measures of marginal rates of transformation and efficiency along each margin that nest their counterparts in frictionless labor markets. In a calibrated version of the model, efficient fluctuations feature highly volatile unemployment and job-finding rates, in line with empirical evidence. We show analytically in a simplified version of the model that volatility arises from selection effects, rather than general equilibrium effects. We also develop sufficient conditions on wages, which are independent of the wage-determination process, that decentralize efficient allocations. Unlike the Hosios condition for matching models, there is no simple restriction on Nash bargaining that guarantees that Nash wages can support efficient allocations. Cyclical fluctuations in the Nash-bargaining economy display even larger amplification of productivity shocks into labor market outcomes than in the efficient economy, without extreme assumptions about bargaining shares, inflexibility of wages, or the size of surpluses that govern labor demand. The results establish normative and positive foundations for DSGE labor selection models.

Sprache
Englisch

Erschienen in
Series: Kiel Working Paper ; No. 1684

Klassifikation
Wirtschaft
Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
Business Fluctuations; Cycles
Demand and Supply of Labor: General
Thema
Labor market frictions
efficiency
Arbeitsmarkttheorie
Allokationseffizienz
Arbeitsnachfrage
Personalauswahl
Dynamisches Gleichgewicht
Konjunktur
Theorie

Ereignis
Geistige Schöpfung
(wer)
Chugh, Sanjay K.
Merkl, Christian
Ereignis
Veröffentlichung
(wer)
Kiel Institute for the World Economy (IfW)
(wo)
Kiel
(wann)
2011

Handle
Letzte Aktualisierung
20.09.2024, 08:22 MESZ

Datenpartner

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Objekttyp

  • Arbeitspapier

Beteiligte

  • Chugh, Sanjay K.
  • Merkl, Christian
  • Kiel Institute for the World Economy (IfW)

Entstanden

  • 2011

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