Leadership

Marginal Jobs, Heterogeneous Firms, & Unemployment Flows

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Executive Summary

This paper introduces a notion of fir m size into a search and matching model with endogenous job destruction. The outcome is a rich, yet analytically tractable framework that can be used to analyze a broad set of features of both the cross section and the dynamics of the aggregate labor market. In a set of quantitative applications the authors show that the model can provide a coherent account of the salient features of the distributions of employer size, and employment growth across establishments; the amplitude and propagation of cyclical fluctuations in flows between employment and unemployment; the negative comovement of unemployment and vacancies in the form of the Beveridge curve; and the dynamics of the distribution of employer size over the business cycle.

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