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Change in Fixed Costs and the Division of Labor within Firms through Labor Reallocation

Shintaku, Koji (2015): Change in Fixed Costs and the Division of Labor within Firms through Labor Reallocation.

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Abstract

This paper investigates the effects of a decrease in fixed costs on the division of labor within firms. In the constant markup rate model, a decrease in fixed costs curbs the division of labor. In the short run, the division of labor is promoted through labor reallocation within firms while in the long run, the division of labor is curbed through labor reallocation across firms. The latter effect dominates the former effect. In the variable markup rate model whose markup rate depends on the number of firms, the decrease in fixed costs induces labor reallocation across firms which is the opposite direction of that of the constant markup rate model in addition. The direction of labor reallocation across firms based on procompetition is opposite to that of the model of Kamei (2014) which does not impose free-entry and free-exit condition. The free-entry and free-exit condition plays a key role in determining the direction of that reallocation based on procompetition effect.

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