DP2576 | Wages and the Size of Firms in Dynamic Matching Models

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This paper studies the joint distribution of wages and employment levels in simple matching models of job creation and destruction with costly search and firm-specific labour demand shocks. Existing evidence on the relationship between employer size, the mean and variance of employees' wages, and the character of gross job creation and destruction by continuing firms are broadly consistent with decreasing returns in firm-level production and hiring technologies.