Firm Dynamics and Labor Market Consequences
31 Pages Posted: 28 Aug 2006 Last revised: 4 Jun 2008
Date Written: May 22, 2008
Abstract
This paper explores a new model of firm dynamics that incorporates workers, their accumulation of specific human capital, and their mobility. A firm's production efficiency is determined by the levels of its managerial capability and its workers' firm-specific human capital in the model. Elaborating on the connection between firm dynamics and specific human capital, I show that the importance of managerial capability systematically influences firm dynamics and employment practices. The model offers a new perspective on the welfare consequences of apparently anticompetitive entry restrictions. By incorporating a government that can enforce entry regulations in the model, I demonstrate that entry restrictions can improve welfare by mitigating the underinvestment problem in specific human capital. The model's empirical and policy implications are also discussed.
Keywords: Entry restrictions, firm dynamics, labor mobility, managerial capability, specific human capital, welfare
JEL Classification: J41, J63, L10, L50, M20, M50
Suggested Citation: Suggested Citation
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