Working Paper: NBER ID: w22677
Authors: Alessandro Gavazza; Simon Mongey; Giovanni L. Violante
Abstract: We develop a model of firm dynamics with random search in the labor market where hiring firms exert recruiting effort by spending resources to fill vacancies faster. Consistent with micro evidence, in the model fast-growing firms invest more in recruiting activities and achieve higher job-filling rates. In equilibrium, individual decisions of hiring firms aggregate into an index of economy-wide recruiting intensity. We use the model to study how aggregate shocks transmit to recruiting intensity, andwhether this channel can account for the dynamics of aggregate matching efficiency around the Great Recession. Productivity and financial shocks lead to sizable pro-cyclical fluctuations inmatching efficiency through recruiting effort. Quantitatively, the main mechanism is that firms attain their employment targets by adjusting their recruiting effort as labor market tightness varies. Shifts in sectoral composition can have a sizable impact on aggregate recruiting intensity. Fluctuations in new-firm entry, instead, have a negligible effect despite their contribution to aggregate job and vacancy creations.
Keywords: No keywords provided
JEL Codes: E24; E32; J21; J23; J63
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Productivity shocks (O49) | Recruiting intensity (M51) |
| Recruiting intensity (M51) | Aggregate matching efficiency (C43) |
| Financial shocks (F65) | Firm entry (L26) |
| Financial shocks (F65) | Labor productivity (O49) |
| Financial shocks (F65) | Recruiting intensity (M51) |
| Productivity shocks (O49) | Aggregate matching efficiency (C43) |
| Slackness effect (H31) | Recruiting intensity (M51) |
| Composition effect (F12) | Recruiting intensity (M51) |
| Aggregate matching efficiency (C43) | Recruiting intensity (M51) |
| Financial shocks (F65) | Aggregate matching efficiency (C43) |