Worker Matching and Firm Value

Eran Yashiv () and Espen Moen ()

No 9375, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper studies the hiring and firing decisions of firms and their effects on firm value. This is done in an environment where the productivity of workers depends on how well they match with their co-workers and the firm acts as a coordinating device. Match quality derives from a production technology whereby workers are randomly located on the Salop circle, and depends negatively on the distance between the workers. It is shown that a worker's contribution in a given firm changes over time in a nontrivial way as co-workers are replaced with new workers. The paper derives optimal hiring and replacement policies, including an optimal stopping rule, and characterizes the resulting equilibrium in terms of employment, firm output and the distribution of firm values. The paper stresses the role of horizontal differences in worker productivity, as opposed to vertical, assortative matching issues. Simulations of the model reveal a rich pattern of worker turnover dynamics and their connections to the resulting firm value and age distributions.

Keywords: Firm value; Complementarity; Worker value; Salop circle; Hiring; Firing; Match quality; Optimal stopping (search for similar items in EconPapers)
JEL-codes: E23 J62 J63 (search for similar items in EconPapers)
Date: 2013-03
New Economics Papers: this item is included in nep-bec, nep-dge and nep-mac
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Related works:
Working Paper: Worker Matching and Firm Value (2013)
Working Paper: Worker Matching and Firm Value (2012)
Working Paper: Worker Matching and Firm Value (2009)
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