Matching Workers

Espen Moen () and Eran Yashiv ()

No 1615, Discussion Papers from Centre for Macroeconomics (CFM)

Abstract: This paper studies the matching of workers within the firm when the productivity of workers depends on how well they match with their co-workers. The firm acts as a coordinating device and derives value from this role. It is shown that a worker's contribution to firm value changes over time in a non-trivial way as co-workers are replaced by new workers. The paper derives optimal hiring and replacement policies, including an optimal stopping rule, and characterizes the resulting equilibrium in terms of worker flows, firm output and the distribution of firm values. Simulations of the model reveal a rich pattern of worker turnover dynamics and their connections to the resulting firm values distribution. The paper stresses the role of horizontal differences in worker productivity, which are different from vertical, assortative matching issues. It derives the rent from organizational capital, with worker complementarities playing a key role. We compare the model to match-specific productivity models and explore the essential differences, with the emphasis laid on worker interactions and complementarities.

Keywords: Worker interactions; Firm value; Complementarity; Worker value; Organizational capital; Salop circle; Hiring; Firing; Match Quality; Optimal Stopping. (search for similar items in EconPapers)
JEL-codes: D23 E23 E24 J24 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2016-06
New Economics Papers: this item is included in nep-dge, nep-hrm, nep-lma and nep-mac
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Working Paper: Matching workers (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:cfm:wpaper:1616

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