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Replacement hiring and the productivity-wage gap

Author

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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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    Cited by:

    1. Arnaud Ch ron & Bruno Decreuse, 2023. "Phantom cycles," TEPP Working Paper 2023-01, TEPP.
    2. Gálvez-Iniesta, Ismael, 2024. "The role of immigration in a deep recession," European Economic Review, Elsevier, vol. 168(C).
    3. 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

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    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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