Here are links to my working papers.

Can labor market policy improve welfare? Answering this question requires determining whether an observed allocation is constrained efficient. When firms with decreasing returns to labor employ workers in a frictional labor market, the equilibrium is constrained inefficient under the usual model of wage bargaining: firms hire too many workers. However, an econometrician who observes model-generated data on wages and on worker and job flows cannot tell whether they arise from this inefficient allocation under bargained wages or from the constrained efficient allocation in an alternative environment that differs in the average level of labor productivity. Data on firm profits, often not available in macroeconomic studies of the labor market, are required to distinguish the two models.

Shimer (2007) introduced a model of mismatch, in which limited mobility of vacant jobs and unemployed workers provides a microfoundation for their coexistence in equilibrium. Shimer assumed that the short side of a local labor market receives all the gains from trade, and argues that the model helps to explain the volatility of unemployment and the vacancy-unemployment ratio in response to productivity shocks. I show that the assumption on wages is essential for this conclusion by considering alternative assumptions. When wages are determined according to the Shapley value, they depend more smoothly on local labor market conditions, but unemployment and the vacancy-unemployment ratio are even more volatile. However, in both cases  amplification relative to the Mortensen-Pissarides benchmark arises only because the implied process for wages is more volatile.

Benchmark labor search models abstract from the large cross-sectional heterogeneity in firm size and employment growth distributions present in US data; these models have also struggled to generate empirically-plausible amplification and propagation of productivity shocks. Does accounting for firm heterogeneity help in solving this problem? Recent work by several authors has argued that the slow adjustment of the firm size distribution following a shock to the economy might help generate more persistent or more volatile responses of key endogenous variables such as vacancies or unemployment than in the Mortensen-Pissarides benchmark. I study a model that allows for very rich microeconomic heterogeneity of firm productivity and productivity growth. I show that despite the ability of the model to replicate key cross-sectional features of the employment and employment growth distribution across firms, the equilibrium behavior of aggregate variables such as unemployment and the vacancy-to-unemployment ratio is practically indistinguishable from that in an appropriately-calibrated Mortensen-Pissarides model. In particular, unemployment is only volatile if the surplus from employment is small, and the vacancy-to-unemployment ratio is a jump variable. Despite allowing for both transitory and permanent idiosyncratic heterogeneity in firm productivity as well as for aggregate productivity shocks, the model is tractable enough to be solved without the need for approximate aggregation solution methods.

I study bargaining between workers and large firms when commitment by the firm to long-term contracts is feasible. The marginal surplus associated with an employment relationship is split in a pre-determined ratio, analogously to generalized Nash bargaining. The resulting contracts are proof against worker-induced renegotiations. Commitment avoids the over-hiring inefficiency identified by Stole and Zwiebel (1996a,b) and Smith (1999). However, even under the Hosios (1990) condition, the equilibrium is still not constrained efficient because large firms search too intensively relative to small firms. This provides a novel justification for subsidizing vacancy creation by small firms.

We present a generalization of the standard random-search model of unemployment in which firms hire multiple workers and in which the hiring process is time-consuming as well as costly. We follow Stole and Zwiebel (1996a,b) and assume that wages are determined by continuous bargaining between the firm and its employees. This generates a non-trivial dispersion of firm sizes; when firms’ production technologies exhibit decreasing returns to labor, it also generates wage dispersion, even though all firms and all workers are ex ante identical. We characterize the steady-state equilibrium of the model; some important special cases are characterized in closed form. We also characterize the out-of-steady state dynamics of employment and wages in response to productivity shocks. Firms can respond to shocks on both an intensive margin (a change in the intensity of vacancy posting of incumbent firms) and extensive margin (a change in the number of active firms); we show that both margins, as well as whether there are decreasing returns to labor at the firm level, are important for the qualitative behavior of the unemployment rate and of the distribution of employment and wages across firms. When there are decreasing returns to labor and free entry of  firms, the responses of unemployment and of the vacancy to unemployment  ratio to a shock to labor productivity are significantly more persistent than in the Mortensen-Pissarides benchmark. The persistence is caused by a novel mechanism arising from an interaction of two key elements of our model: new entrant firms are small for some time because hiring is time-consuming and they pay high wages because of bargaining; this drives up wages for other firms and slows down job creation.

(Accepted, International Economic Review)

I study competitive search equilibrium in an environment where firms operate a decreasing-returns production technology and hire multiple workers simultaneously. Firms post wages, possibly several of them. The equilibrium can feature wage dispersion even though all firms and workers are ex ante identical. Unlike the benchmark where firms hire a single worker, hiring is constrained inefficient. Efficiency requires that firms commit to the number of hires, pay all applicants, or pay wages that depend on the number of applicants. Under wage-posting, the inefficiency is highest at intermediate levels of labor market tightness.