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Hires and Separations in Equilibrium


  • Edward P. Lazear
  • Kristin McCue


Hiring is positively correlated with separation, both across firms and over time. A theory of hiring and separation based on shifts in demand implies the opposite. One firm or industry hires and grows when another fires and contracts. But hiring for expansion and layoff for contraction comprises the minority of hiring and separation. A more accurate view is that hiring and separation reflect churn and are balanced in equilibrium, where one is the mirror image of the other. Hiring occurs primarily to fill vacant slots that open up when a firm separates a worker. Equivalently, a separation results when a worker is hired away by another firm. A model of efficient mobility yields several specific predictions in addition to the positive correlation between hires and separations. Labor market churn is most likely in firms and industries with low mean wages and high wage variance. Additionally, churn decreases during recessions with hires falling first followed by a decline in separations to match hiring. Finally, the young are predicted to bear the brunt of hiring declines. These predictions are borne out in the LEHD microdata at the economy and firm levels.

Suggested Citation

  • Edward P. Lazear & Kristin McCue, 2017. "Hires and Separations in Equilibrium," NBER Working Papers 23059, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:23059
    Note: LS

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    References listed on IDEAS

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    Cited by:

    1. Ruediger Bachmann & Christian Bayer & Christian Merkl & Stefan Seth & Heiko Stüber & Felix Wellschmied, 2017. "Worker Churn and Employment Growth at the Establishment Level," CESifo Working Paper Series 6702, CESifo Group Munich.

    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General
    • M0 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - General
    • M00 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - General - - - General
    • M5 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics

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