Worker Matching and Firm Value
AbstractThis paper studies the value of firms and their hiring and firing decisions in an environment where the productivity of the workers depends on how well they match with their co-workers and the firm acts as a coordinating device. Match quality derives from a production technology whereby workers are randomly located on the Salop circle, and depends negatively on the distance between the workers. It is shown that a worker's contribution in a given firm changes over time in a nontrivial way as co-workers are replaced with new workers. The paper derives optimal hiring and replacement policies, including an optimal stopping rule, and characterizes the resulting equilibrium in terms of employment, wages and distribution of firm values. The paper stresses the role of horizontal differences in worker productivity, as opposed to vertical, assortative matching issues. Simulations of the model show the dynamics of worker replacement policy, the resulting firm value and age distributions, and the connections between them.
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Bibliographic InfoPaper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6657.
Length: 38 pages
Date of creation: Jun 2012
Date of revision:
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Find related papers by JEL classification:
- E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
- J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion
- J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-07-01 (All new papers)
- NEP-BEC-2012-07-01 (Business Economics)
- NEP-DGE-2012-07-01 (Dynamic General Equilibrium)
- NEP-HRM-2012-07-01 (Human Capital & Human Resource Management)
- NEP-LAB-2012-07-01 (Labour Economics)
- NEP-MAC-2012-07-01 (Macroeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jan Eeckhout & Philipp Kircher, 2009.
"Identifying Sorting - In Theory,"
PIER Working Paper Archive
09-007, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
- John Haltiwanger & Ron S. Jarmin & Javier Miranda, 2010.
"Who Creates Jobs? Small vs. Large vs. Young,"
10-17, Center for Economic Studies, U.S. Census Bureau.
- Jan Eeckhout & Philipp Kircher, 2008.
"Sorting and Decentralized Price Competition,"
PIER Working Paper Archive
08-020, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
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