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The Effect of Quits on Worker Recruitment: Theory and Evidence

  • Eva Nagypal

    (Northwestern University)

  • R. Jason Faberman

    (US Bureau of Labor Statistics)

Recruitment effort by a firm can signify one of two things: a desire to expand or a need to replace workers who have quit profitable positions. Standard matching models with on-the-job search treat these two recruitment activities as the same. Yet, we provide empirical evidence that suggests these two activities differ in the sense that, all else equal, an establishment is much more likely to post a vacancy and hire a worker if a worker has quit a position at the firm. Our evidence is robust to a variety of controls, including establishment fixed effects. One natural explanation for this is that workers who quit leave behind firm-specific physical and organizational capital, thereby making replacement hiring less costly than the creation of a new position. To this end, we develop a matching model with on-the-job search and multi-worker firms that differentiates between the cost of creating a new position and the cost of adverting for an existing opening. The model naturally creates a distinction between worker and job flows and, through endogenously-determined thresholds for separations, worker replacement and position creation, produces rich firm-level employment dynamics that are broadly consistent with our empirical evidence.

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File URL: https://www.economicdynamics.org/meetpapers/2007/paper_780.pdf
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Paper provided by Society for Economic Dynamics in its series 2007 Meeting Papers with number 780.

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Date of creation: 2007
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Handle: RePEc:red:sed007:780
Contact details of provider: Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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Web page: http://www.EconomicDynamics.org/society.htm
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  1. Bruce C. Fallick & Charles A. Fleischman, 2001. "The importance of employer-to-employer flows in the U.S. labor market," Finance and Economics Discussion Series 2001-18, Board of Governors of the Federal Reserve System (U.S.).
  2. Dale T. Mortensen & Christopher A. Pissarides, 1993. "Job Creation and Job Destruction in the Theory of Unemployment," CEP Discussion Papers dp0110, Centre for Economic Performance, LSE.
  3. Robert H. Topel & Michael P. Ward, 1988. "Job Mobility and the Careers of Young Men," NBER Working Papers 2649, National Bureau of Economic Research, Inc.
  4. George A. Akerlof & Andrew K. Rose & Janet L. Yellen, 1988. "Job Switching and Job Satisfaction in the U.S. Labor Market," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(2), pages 495-594.
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