Publication Type

Journal Article

Version

submittedVersion

Publication Date

1-2017

Abstract

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.

Keywords

equilibrium unemployment, cyclical behavior, labor-market, turnover costs, firm dynamics, search, efficiency, wages, size

Discipline

Labor Economics | Macroeconomics

Research Areas

Macroeconomics

Publication

American Economic Journal: Macroeconomics

Volume

9

Issue

1

First Page

88

Last Page

127

ISSN

1945-7707

Identifier

10.1257/mac.20140260

Publisher

American Economic Association

Additional URL

https://doi.org/10.1257/mac.20140260

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