Countercyclical Recruiting Rates and the Value of Jobs

Eran Yashiv ()

No 9364, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: U.S. CPS gross flows data indicate that in recessions firms actually increase their hiring rates from the pools of the unemployed and out of the labor force. Why so? The paper provides an explanation by studying the optimal recruiting behavior of the representative firm. This behavior is a function of the value of jobs, i.e., the expected present value of the marginal worker to the firm. Job values are estimated to be counter-cyclical in U.S. data, the underlying reason being the dynamic behavior of the labor share of GDP. The counter-cyclicality of hiring rates and job values, which may appear counter-intuitive, is shown to be consistent with well-known business cycle facts, such as pro-cyclical employment and pro-cyclical vacancy and job-finding rates (as well as job to job flows). The analysis emphasizes the difference between current labor productivity and the forward-looking concept of job value. The paper explains the high volatility of firm recruiting behavior, as well as the reduction in labor market fluidity in the U.S. over time, using the same framework.

Keywords: firm recruitment; job values; business cycles; vacancies; hiring; labor market frictions; volatility; labor market fluidity (search for similar items in EconPapers)
JEL-codes: E24 E32 (search for similar items in EconPapers)
Pages: 71 pages
Date: 2015-09
New Economics Papers: this item is included in nep-bec, nep-dge and nep-mac
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