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Replacement hiring and the productivity-wage gap

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  • Sushant Acharya
  • Shu Lin Wee

Abstract

A large and growing share of hires in the United States are replacement hires. This increase coincides with a growing productivity-wage gap. We connect these trends by building a model where firms post long-lived vacancies and engage in on-the-job search for more productive workers. These features improve a firm's bargaining position while raising workers' job insecurity and the wedge between hiring and meeting rates. All three channels lower wages while raising productivity. Quantitatively, increased replacement hiring explains half the increase in the productivity-wage gap. The socially efficient outcome features fewer low-productivity jobs and a 10 percent narrower productivity-wage gap.

Suggested Citation

  • Sushant Acharya & Shu Lin Wee, 2018. "Replacement hiring and the productivity-wage gap," Staff Reports 860, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednsr:860
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    References listed on IDEAS

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    1. David Autor & David Dorn & Lawrence F Katz & Christina Patterson & John Van Reenen, 2020. "The Fall of the Labor Share and the Rise of Superstar Firms [“Automation and New Tasks: How Technology Displaces and Reinstates Labor”]," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 135(2), pages 645-709.
    2. James Albrecht & Bruno Decreuse & Susan Vroman, 2023. "Directed Search With Phantom Vacancies," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 64(2), pages 837-869, May.
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    5. Fujita, Shigeru & Ramey, Garey, 2007. "Job matching and propagation," Journal of Economic Dynamics and Control, Elsevier, vol. 31(11), pages 3671-3698, November.
    6. Arnaud Cheron & Bruno Decreuse, 2017. "Matching with Phantoms," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 84(3), pages 1041-1070.
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    Cited by:

    1. Yusuf Mercan & Benjamin Schoefer, 2020. "Jobs and Matches: Quits, Replacement Hiring, and Vacancy Chains," American Economic Review: Insights, American Economic Association, vol. 2(1), pages 101-124, March.

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    More about this item

    Keywords

    replacement hiring; productivity-wage gap; unemployment; labor share; efficiency;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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