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FIRM DYNAMICS WITH FRICTIONAL PRODUCT AND LABOR MARKETS
Author(s) -
Kaas Leo,
Kimasa Bihemo
Publication year - 2021
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/iere.12510
Subject(s) - productivity , economics , product market , business cycle , product (mathematics) , panel data , demand shock , aggregate (composite) , german , labour economics , microeconomics , industrial organization , econometrics , macroeconomics , history , materials science , geometry , mathematics , archaeology , composite material , incentive
Abstract We analyze the joint dynamics of prices, productivity, and employment across firms, building a dynamic equilibrium model of heterogeneous firms who compete for workers and customers in frictional labor and product markets. Using panel data on prices and output for German manufacturing firms, the model is calibrated to evaluate the quantitative contributions of productivity and demand for the labor market. Product market frictions decisively dampen the firms' employment adjustments to productivity shocks. We further analyze the impact of aggregate shocks to the first and second moments of productivity and demand and relate them to business‐cycle features in our data.