Slow to Hire, Quick to Fire: Employment Dynamics with Asymmetric Responses to News
62 Pages Posted: 15 Sep 2014 Last revised: 15 Jun 2020
Date Written: September 2014
Concave hiring rules imply that firms respond more to bad shocks than to good shocks. They provide a unified explanation for several seemingly unrelated facts about employment growth in macro and micro data. In particular, they generate countercyclical movement in both aggregate conditional “macro” volatility and cross-sectional “micro” volatility, as well as negative skewness in the cross-section and in the time series at different levels of aggregation. Concave establishment-level responses of employment growth to TFP shocks estimated from Census data induce significant skewness, movements in volatility and amplification of bad aggregate shocks.
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