Directed Search and Job Rotation

By Fei Li and Can Tian

http://d.repec.org/n?u=RePEc:pen:papers:12-024&r=dge

We consider the impact of job rotation in a directed search model in which firm sizes are endogenously determined and match quality is initially unknown. A large firm benefits from the opportunity of rotating workers so as to partially overcome loss of mismatch. As a result, in the unique symmetric equilibrium, large firms have higher labor productivity and lower separation rates. In contrast to the standard directed search model with multi-vacancy firms, this model can generate a positive correlation between firm size and wage without introducing any ex ante productivity differences or imposing any non-concave production function assumption.

Interesting contribution in the literature that tries to explain the positive correlation between firm size and wages. Internal reassignments do indeed provide opportunities for correcting mismatches, something small firms cannot enjoy. The latter must go though costly firing and hiring. I wonder whether the correlation is stronger in countries where the latter costs are higher, which would corroborate this theory.

About these ads

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Follow

Get every new post delivered to your Inbox.

Join 44 other followers

%d bloggers like this: