Labor Supply Management in Search E quilibrium
Abstract:
We propose a framework for unders tanding why nonparticipation in the labor force accelerates during contract ions and participation does not fully recover during expansions to the pre- recession levels. We interpret this phenomenon as the coordination failure among firms and workers as vacancies are posted arising from wage-contracti ng features; that is, random search and ex-ante wage commitments. Within th is setup we show that the persistent changes in labor force participation w ill arise in response to transitory movements in the marginal product of la bor: A negative shock to productivity may induce each firm to restrict wage s unilaterally (solving its individual monopsony problem.) On the upside, h owever, raising wages beyond the going wage level has no impact on labor su pply, since worker expectations are based on the aggregate wage level and e ach individual firm is massless and facing random search. These results are driven by an externality due to the search friction: an atomistic firm can not unilaterally induce reentry of nonparticipants but a (universal) wage i ncrease can increase the rate of participation.
DTSTAMP:20260404T140441Z DTSTART:20150916T130000Z DTEND:20150916T140000Z SEQUENCE:0 TRANSP:OPAQUE END:VEVENT END:VCALENDAR