When Uncertainty Raises Hiring

Kee-Youn Kang

MPRA Paper from University Library of Munich, Germany

Abstract: We study when productivity volatility raises hiring. In the U.S., total productivity volatility predicts higher unemployment and lower labor-market tightness. After removing the component explained by current aggregate conditions and their recent history, however, volatility predicts lower unemployment, higher tightness, and higher job finding. We develop a labor search model with aggregate productivity risk, match-specific productivity, hiring costs, and flexible or sticky wage setting. Volatility affects job finding through state-dependent hiring cutoffs and vacancy creation. The aggregate response is positive when these margins improve in states with large unemployment weight. Sticky wages amplify this response by limiting pass-through of surplus gains to workers.

Keywords: Labor search; uncertainty; state-dependent volatility; endogenous hiring; sticky wages; hiring cost (search for similar items in EconPapers)
JEL-codes: E0 E2 E24 (search for similar items in EconPapers)
Date: 2026-06-02
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