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When Uncertainty Raises Hiring

Author

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  • Kang, Kee-Youn

Abstract

We study when productivity volatility raises hiring. In the U.S., total productivity volatility predicts higher unemployment and lower labor-market tightness. After removing the component explained by current aggregate conditions and their recent history, however, volatility predicts lower unemployment, higher tightness, and higher job finding. We develop a labor search model with aggregate productivity risk, match-specific productivity, hiring costs, and flexible or sticky wage setting. Volatility affects job finding through state-dependent hiring cutoffs and vacancy creation. The aggregate response is positive when these margins improve in states with large unemployment weight. Sticky wages amplify this response by limiting pass-through of surplus gains to workers.

Suggested Citation

  • Kang, Kee-Youn, 2026. "When Uncertainty Raises Hiring," MPRA Paper 129454, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:129454
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    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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