Events at CERGE-EI

Maxime Liégey

Toulouse School of Economics, France

Author: Maxime Liégey

Abstract: Dispersion in firm dynamics is large. I show that firm-level correlations between size, wage, output and productivity, span the whole support [-1,1], a fact that is robust to sample selection. Optimal inaction on the extensive margin can account for some dispersion, yet this mechanism alone fails to match the entire support. I propose a model where managers team up with workers to produce using knowledge. Replacing workers takes time, which generates inaction on the extensive margin, while managers can respond to negative shocks by using their own knowledge, thus adjusting along the intensive margin. I show that this model creates non-linearities in the correlations between firm-level variables, and can account for over 85% of the dispersion found in the data. In addition, it provides new insights into the issue of sorting among heterogeneous agents.

Full Text:  “Search frictions, the use of knowledge, and the dispersion in firm dynamics”