Firm Dynamics and Labor Market Consequences

This article 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 public policy implications 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. (JEL J24, J63, L10, L40, L50, M20, M50)