On the job search and working capital

We study the steady-state effects of working capital channel on the distribution of wages and reallocation of workers across employers. We first show that in a simple Burdett-Mortensen on-the-job search model, working capital channel matter for wage offers distributions of firms and wage distribution of workers. Both wage offer and wage distributions with working capital channel operating are stochastically dominated by distributions without this channel. We also show how working capital channel affects firm size, cross-firms flows of workers and firms’ poaching behavior.