Job Matching with Multiple-Hiring Firms and Heterogeneous Workers: A Microfoundation

The traditional search models that consider coordination failure of firms consisting of single jobs, are inadequate when applied to large firms. In this paper a firm-level matching function is derived for firms with multiple vacancies, by introducing heterogeneity in jobs and workers. Firms face diminishing returns to hiring success, which allows us to determine firm-size endogenously. The derived aggregate matching function exhibits constant returns to scale. The main macroeconomic results of the traditional search models are also shown to survive in this model of large firms. The paper thus provides a microfoundation to the macroeconomic job-matching literature.