Efficient firm dynamics in a frictional labor market

Leo Kaas, Philipp Kircher

Research output: Contribution to journalArticlepeer-review


We develop and analyze a labor market model in which heterogeneous firms operate under decreasing returns and compete for labor by posting long-term contracts. Firms achieve faster growth by offering higher lifetime wages, which allows them to fill vacancies with higher probability, consistent with recent empirical findings. The model also captures several other regularities about firm size, job flows, and pay, and generates sluggish aggregate dynamics of labor market variables. In contrast to existing bargaining models with large firms, efficiency obtains and the model allows a tractable characterization over the business cycle.
Original languageEnglish
Pages (from-to)3030-3060
JournalAmerican Economic Review
Issue number10
Publication statusPublished - 1 Oct 2015


  • labor market search
  • multi-worker firms
  • job creation and job destruction


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