Working Paper: CEPR ID: DP12343
Authors: Rüdiger Bachmann; Christian Bayer; Christian Merkl; Stefan Seth; Heiko Stüber; Felix Wellschmied
Abstract: Worker churn, that is, worker flows in excess of job flows, is procyclical in the German labor market. To understand this procyclicality, we study the plant-level connection of churn and employment growth, using the new Administrative Wage and Labor Market Flow Panel from 1975 to 2014, and find that churn rises in the absolute value of employment growth. Analyzing this V-shaped churn-employment growth nexus by worker skill, age, and tenure, we establish that churn is unlikely to result from plant reorganization but rather from the correction of labor market mismatches. Using a simple dynamic labor demand framework, we argue that the cross-sectional evidence on churn can be interpreted as manifestations of idiosyncratically stochastic separation shocks in conjunction with a time-to-hire friction. These shocks become larger and more predictable during booms leading to procyclical churn, which, as we show, (1) increases almost uniformly across the employment growth distribution, and (2) stems almost exclusively from jobto- job transitions. Procyclical churn, thus, reflects a more active reshuffling of workers towards individually better matches in booms.
Keywords: worker churn; employment growth; job flows; worker flows; labor demand; separation shocks; job-to-job transitions; aggregate fluctuations
JEL Codes: E20; E24; E32; J23; J63
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| worker churn (J63) | employment growth (O49) |
| employment growth (O49) | worker churn (J63) |
| economic booms (E32) | worker churn (J63) |
| worker skill, age, and tenure (J29) | worker churn (J63) |
| stochastic separation shocks + time-to-hire frictions (J69) | worker churn (J63) |