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Firm Entry with an Imperfect Labor Market

Firm Entry with an Imperfect Labor Market AbstractAn economy is considered in which new firms require time to learn whether they will grow in size and profitability in the long run. The labor market is imperfectly competitive. I show that inefficient levels of firm entry will generally exist. Whether under or over entry occurs is tightly related to the bargaining power of labor, but the logic behind my result differs dramatically from other work which has identified a similar link. The theory may shed some light on the continuing debate over the contribution of small firms to economic growth, and suggests that, in some cases, subsidizing small firms may be socially beneficial. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The B E Journal of Macroeconomics de Gruyter

Firm Entry with an Imperfect Labor Market

Johnson, Justin P.
The B E Journal of Macroeconomics , Volume 5 (1): 1 – Jun 13, 2005
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Publisher
de Gruyter
Copyright
©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
ISSN
1935-1690
eISSN
1534-5998
DOI
10.2202/1534-5998.1146
Publisher site
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Abstract

AbstractAn economy is considered in which new firms require time to learn whether they will grow in size and profitability in the long run. The labor market is imperfectly competitive. I show that inefficient levels of firm entry will generally exist. Whether under or over entry occurs is tightly related to the bargaining power of labor, but the logic behind my result differs dramatically from other work which has identified a similar link. The theory may shed some light on the continuing debate over the contribution of small firms to economic growth, and suggests that, in some cases, subsidizing small firms may be socially beneficial.

Journal

The B E Journal of Macroeconomics – de Gruyter

Published: Jun 13, 2005

Keywords: bargaining; search; job creation; entry; externality

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