The quality effect of intra-firm bargaining with endogenous worker flows

The performance of the labor market depends not only on the quantity of jobs in the economy, but also on the quality of jobs. This paper proposes a new theoretical explanation of the job quality issue in search and matching models. We develop a matching and intra-firm bargaining model in which large firms hire workers and decide to destroy low-productivity job-worker matches. The sources of inefficiency include the well-known quantitative effect of intra-firm bargaining, namely, the excessive size of the firms concerned; and a new quality effect, namely, the poor quality of the job-worker matches selected by firms.