Eva Nagypal

Labor-Market Fluctuations and On-the-Job Search

This paper argues that a model of the aggregate labor market that incorporates the observed extent of job-to-job transitions can explain all the cyclical volatility in vacancy and unemployment rates in U.S. data in response to shocks of the observed magnitude. The key to this result is the complementarity between on-the-job search and costly hiring that leads employers to expect a higher payoff from recruiting employed searchers. This higher expected payoff explains why firms recruit more when the number of employed searchers is high during periods of low unemployment.

Quits, Worker Recruitment, and Firm Growth: Theory and Evidence

The authors use establishment data from the Job Openings and Labor Turnover Survey (JOLTS) to study the micro-level behavior of worker quits and their relation to recruitment and establishment growth. They find that quits decline with establishment growth, playing the most important role at slowly contracting firms. They also find a robust, positive relationship between an establishments reported hires and vacancies and the incidence of a quit. This relationship occurs despite the finding that quits decline, and hires and vacancies increase, with establishment growth. The authors characterize these dynamics within a labor-market search model with on-the-job search, a convex cost of creating new positions, and multi-worker establishments. The model distinguishes between recruiting to replace a quitting worker and recruiting for a new position, and relates this distinction to firm performance. Beyond giving rise to a varying quit propensity, the model generates endogenously determined thresholds for firm contraction (through both layoffs and attrition), worker replacement, and firm expansion. The continuum of decision rules derived from these thresholds produces rich firm-level dynamics and quit behavior that are broadly consistent with the empirical evidence of the JOLTS data.

Chapter 19 Amplification of Productivity Shocks: Why Don't Vacancies Like to Hire the Unemployed?☆

Abstract In this paper, I study a new amplification mechanism in search models that arises when workers can choose to search on the job and when, for endogenous reasons, employers reap higher benefits from contacting employed searchers. The motivation for on-the-job search in the model is job shopping, where workers look for jobs they find appealing and the appeal of a job to the worker is not observed by the firm. In equilibrium, workers arriving from unemployment are more likely to leave a job for a more appealing one. Knowing this, firms prefer to contact already-employed searchers. Employers’ preference for contacting already-employed searchers introduces a new amplification mechanism into search models. Vacancies in this type of model respond more to aggregate shocks than in standard search models: the probability that a newly encountered searcher is employed rises in a boom, thereby making it more attractive for firms to post vacancies. Using simulations of the proposed model, I explore the extent to which this new amplification mechanism helps in explaining the volatility of unemployment and vacancies over the business cycle. The calibration results show that, for standard parameter values, this mechanism can generate eight times more amplification in response to productivity shocks compared to the baseline model. Moreover, the proposed model, unlike the standard search model, predicts that unemployment and vacancies respond with different signs to shocks in the rate of exogenous separation. This brings back these type of shocks as plausible driving forces behind labor-market fluctuations over the business cycle.