Vacancy Chains

Michael W. L. Elsby, Axel Gottfries, Ryan Michaels and David Ratner

Journal of Political Economy, 2025, vol. 133, issue 11, 3550 - 3604

Abstract: Replacement hiring plays a central role in establishment dynamics. US establishments frequently report no net change in their employment, often for years, despite facing substantial gross turnover. We devise a tractable model in which replacement hiring is driven by a novel structure of frictions, combining firm dynamics, on-the-job search, and investments into job creation that are sunk at the point of replacement. A key implication is the emergence of vacancy chains. Quantitatively, the model reconciles the incidence of replacement hiring with large cross-establishment dispersion in labor productivity and largely replicates the volatility and persistence of job creation and unemployment.

Date: 2025
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