Research Discussion Papers, Bank of Finland
Endogenous market structures and labour market dynamics
() and Lorenza Rossi
Abstract: We propose a flexible prices model where endogenous market
structures and search and matching frictions in the labour market interact
endogenously. The interplay between firms’ endogenous entry, strategic
interactions among producers and labour market frictions represents a
strong amplification channel for technology shocks on labour market
variables and helps in addressing the unemployment- volatility puzzle.
Consistently with US evidence, new firms create a large fraction of new
jobs and grow faster than more mature firms, net entry of firms is
procyclical and the price mark-up is countercyclical.
Keywords: endogenous market structures; firms’ entry; search and matching; friction; (follow links to similar papers)
JEL-Codes: E24; E32; L11; (follow links to similar papers)
51 pages, May 19, 2011
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