Worker Matching and Firm Value
This paper studies the hiring and firing decisions of firms and their effects on firm value. This is done in an environment where the productivity of 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, firm output and the 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 reveal a rich pattern of worker turnover dynamics and their connections to the resulting firm value and age distributions.
|Date of creation:||Mar 2013|
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- Eric D. Gould & Eyal Winter, 2009.
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"Job Matching and the Theory of Turnover,"
Journal of Political Economy,
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"The Assignment of Workers to Jobs In an Economy with Coordination Frictions,"
NBER Working Papers
8501, National Bureau of Economic Research, Inc.
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- Michael Kremer, 1993. "The O-Ring Theory of Economic Development," The Quarterly Journal of Economics, Oxford University Press, vol. 108(3), pages 551-575.
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- Jan Eeckhout & Philipp Kircher, 2010.
"Sorting and decentralized price competition,"
LSE Research Online Documents on Economics
29705, London School of Economics and Political Science, LSE Library.
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"Who Creates Jobs? Small vs. Large vs. Young,"
10-17, Center for Economic Studies, U.S. Census Bureau.
- Barton H. Hamilton & Jack A. Nickerson & Hideo Owan, 2003. "Team Incentives and Worker Heterogeneity: An Empirical Analysis of the Impact of Teams on Productivity and Participation," Journal of Political Economy, University of Chicago Press, vol. 111(3), pages 465-497, June.
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