The ratio of hirings to vacancies in the U.S. has the following establishment level properties: (i) it steeply rises with employment growth rate; (ii) falls with establishment size; and (iii) rises with worker turnover rate. The standard Diamond-Mortensen Pissarides (DMP) matching model is not compatible with these observations. This paper augments selection of workers prior to hiring into a random matching model with multi-worker ﬁrms. In the calibrated model, worker selection accounts for about 30% of the variation in the hiring-vacancy ratio observed in the data. Compared to the standard model, the worker selection model has both qualitative and quantitative policy implications. A hiring subsidy reduces the unemployment rate substantially in the worker selection model, whereas the reduction in the unemployment rate is very small in the standard model. The two models also diﬀer regarding the impact of the hiring subsidy across ﬁrms. The worker selection model implies that ﬁrms that have initially high worker turnover rates experience proportionally higher worker turnover rates after the subsidy. In contrast, the standard model predicts that the worker turnover rate increases proportionally more at ﬁrms with initially lower worker turnover rates.
equilibrium unemployment, cyclical behavior, labor-market, turnover costs, firm dynamics, search, efficiency, wages, size
Labor Economics | Macroeconomics
American Economic Journal: Macroeconomics
American Economic Association
Worker selection, hiring, and vacancies. (2017). American Economic Journal: Macroeconomics. 9, (1), 88-127. Research Collection School Of Economics.
Available at: http://ink.library.smu.edu.sg/soe_research/1990
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