A BEJM Topics article.

Abstract

An economy is considered in which new firms require time to learn whether they will grow in size and profitability in the long run. The labor market is imperfectly competitive. I show that inefficient levels of firm entry will generally exist. Whether under or over entry occurs is tightly related to the bargaining power of labor, but the logic behind my result differs dramatically from other work which has identified a similar link. The theory may shed some light on the continuing debate over the contribution of small firms to economic growth, and suggests that, in some cases, subsidizing small firms may be socially beneficial.

Submitted: July 18, 2003 · Accepted: August 22, 2004 · Published: June 13, 2005

Originally published in Topics in Macroeconomics.

Recommended Citation

Johnson, Justin P. (2005) "Firm Entry with an Imperfect Labor Market," Topics in Macroeconomics: Vol. 5 : Iss. 1, Article 12.
Available at: http://www.bepress.com/bejm/topics/vol5/iss1/art12