Quits, worker recruitment, and firm growth: theory and evidence

The authors use establishment data from the Job Openings and Labor Turnover Survey (JOLTS) to study the micro-level behavior of worker quits and their relation to recruitment and establishment growth. They find that quits decline with establishment growth, playing the most important role at slowly contracting firms. They also find a robust, positive relationship between an establishment's reported hires and vacancies and the incidence of a quit. This relationship occurs despite the finding that quits decline, and hires and vacancies increase, with establishment growth. The authors characterize these dynamics within a labor-market search model with on-the-job search, a convex cost of creating new positions, and multi-worker establishments. The model distinguishes between recruiting to replace a quitting worker and recruiting for a new position, and relates this distinction to firm performance. Beyond giving rise to a varying quit propensity, the model generates endogenously determined thresholds for firm contraction (through both layoffs and attrition), worker replacement, and firm expansion. The continuum of decision rules derived from these thresholds produces rich firm-level dynamics and quit behavior that are broadly consistent with the empirical evidence of the JOLTS data.Employment (Economic theory)

More on Unemployment and Vacancy Fluctuations

Shimer (2005a) argues that the Mortensen-Pissarides equilibrium search model of unemployment explains only about 10% of the response in the job-finding rate to an aggregate productivity shock. Some of the recent papers inspired by his critique are reviewed and commented on here. Specifically, we suggest that the sole problem is neither the procyclicality of the wage nor the failure to account fully for the opportunity cost of employment. Although an amended version of the model, one that accounts for capital costs and counter cyclic involuntary separations, does much better, it still explains only 40% of the observed volatility of the job-finding rate. Finally, allowing for on-the-job search does not improve the amended models implications for the amplification of productivity shocks.

Fixed-Term Contracts in Europe: A Reassessment in Light of the Importance of Match-Specific Learning

The use of fixed-term contracts has proliferated during the past decade in many European countries due to the relaxation of their regulation. Policymakers aimed to reduce labor-market rigidities by offering to firms these flexible contracts with little or no dismissal costs but with a finite contract length. The analysis of these contracts has thus far focused on their effect on the overall employment rate. This study high-lights that in the evaluation of fixed-term contracts as policy instruments it is also important to look at their effect on productivity as a function of tenure and on the tenure distribution of employed workers. These two effects jointly determine the policy's overall productivity effect. I show that the liberalization of fixed-term contracts can have a significant effect on the productivity of employment relationships when match-specific learning is important. Moreover, the effect is different depending on the assumption about the nature of the learning process. I distinguish between two kinds of match-specific learning - learning-by-doing and learning about match quality - and show that under learning-by-doing the overall productivity effect is necessarily negative, while under learning about match quality the effect could be either negative or positive depending on how much experimentation improves in the presence of fixed-term contracts. I calibrate the model based on earlier empirical work and find that indeed the productivity effect is positive as output per worker increases by 0.6%

Fixed-Term Contracts in Europe: A Reassessment in Light of the Importance of Match-Specific Learning

The use of fixed-term contracts has proliferated during the past decade in many European countries due to the relaxation of their regulation. Policymakers aimed to reduce labor-market rigidities by offering to firms these flexible contracts with little or no dismissal costs but with a finite contract length. The analysis of these contracts has thus far focused on their effect on the overall employment rate. This study high-lights that in the evaluation of fixed-term contracts as policy instruments it is also important to look at their effect on productivity as a function of tenure and on the tenure distribution of employed workers. These two effects jointly determine the policy's overall productivity effect. I show that the liberalization of fixed-term contracts can have a significant effect on the productivity of employment relationships when match-specific learning is important. Moreover, the effect is different depending on the assumption about the nature of the learning process. I distinguish between two kinds of match-specific learning - learning-by-doing and learning about match quality - and show that under learning-by-doing the overall productivity effect is necessarily negative, while under learning about match quality the effect could be either negative or positive depending on how much experimentation improves in the presence of fixed-term contracts. I calibrate the model based on earlier empirical work and find that indeed the productivity effect is positive as output per worker increases by 0.6%.

US Earnings and Employment Dynamics 1961 - 2002: Facts and Interpretation

In this study we summarize the main trends in the earnings and employment distribution for the US during the last four decades using data drawn from the March CPS. Our aim is to state the facts in a simple descriptive way , which then enables the readers to formulate their own judgment on how well existing theories explain the recent trends and what other explanations might be important contenders. One of the most important changes of the past four decades has been the change in the compostion of workers by education. An equally dramatic change – that has received much less attention in the wage inequality literature – took place among women. The gap between their wages and those of men declined. Their educational attainment grew more than that of men, and their participation rate increased dramatically, which together meant that over 60% of the increase in the fraction of those with at least some college education was due to women. Despite this fact, they experienced less of an increase in inequality than men did, and in fact it was in the most educated groups that women succeeded the least in closing the gap between their wages and that of men. There are no existing theories of wage inequality that satisfacctorily address these differences among the genders. Looking at broad occupation groups, we find large returns to occupation beyond that to education, which imply that occupation is an important measure of skill besides education. Despite the large changes in the educational composition, there has been no marked change in recent decades in the occupational distribution, except for the increase in the share of managerial and professional women, who did not experience a spectacular rise in the return to their skills. Any theory addressing the changes in the wage and employment structure should also incorporate occupation as a measure of skill.Wage Inequality, Employment, Occupation, Education

Consumption and Savings with Unemployment Risk: Implications for Optimal Employment Contracts

(one section is incomplete) This paper derives analytically consumption and asset profiles when there are employment and unemployment risks and moral hazard. Without perfect insurance, consumption rises during employment and falls during unemployment. Optimal employment contracts that offer severance compensation smooth consumption during employment without causing moral hazard. A pre-announced delay in separation when the job becomes unproductive provides further insurance but because of moral hazard it does not fully smooth consumption. During the delay consumption falls and the worker searches for another job. No delays in separations are optimal if the level of exogenous unemployment compensation is sufficiently high. Employment contracts often contain provisions for the payment of severance compensation to dismissed employees, or for delays in dismissals. The most common procedure that delays dismissal is the requirement to give a notice of fixeddurationbeforedismissal. There are, however, other procedures. In many countries, minimum levels of severance compensation and dismissal delays are written in employment laws but private contracts contain similar, if not more, stringent requirements. The OECD (1999) reports that on average in its member countries employers are required to give minimum advance notice of dismissal of 1.6 months to employees of four years standing and t