The Importance of Hiring Frictions in Business Cycles

Renato Faccini and Eran Yashiv ()
Additional contact information
Eran Yashiv: Tel Aviv University

No 12889, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Hiring is a costly activity reflecting firms' investment in their workers. Micro-data shows that hiring costs involve production disruption. Thus, cyclical fluctuations in the value of output, induced by price frictions, have consequences for the optimal allocation of hiring activities. We outline a mechanism based on cyclical markup fluctuations, placing emphasis on hiring frictions interacting with price frictions. This mechanism generates strong propagation and amplification of all key macroeconomic variables in response to technology shocks and mutes the traditional transmission of monetary policy shocks. A local projection analysis of aggregate U.S. data shows that the empirical results, including the cyclicality of markups, are consistent with the model's impulse response functions.

Keywords: propagation and amplification; confluence of hiring and price frictions; business cycles; intertemporal allocation; hiring as investment; mark up cyclicality (search for similar items in EconPapers)
JEL-codes: E22 E24 E32 E52 (search for similar items in EconPapers)
Pages: 68 pages
Date: 2020-01
New Economics Papers: this item is included in nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published - published in: Quantitative Economics, 2022, 13 (3), 1101 - 1143

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Related works:
Journal Article: The importance of hiring frictions in business cycles (2022)
Working Paper: The Importance of Hiring Frictions in Business Cycles (2017)
Working Paper: The importance of hiring frictions in business cycles (2017)
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