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Hiring Puzzle: Why Do Firms Decrease Hiring So Much in Recessions?

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Abstract

The unemployment rate fluctuates with the business cycle, rising and falling as economic activity changes: Businesses increase hiring during expansions (causing unemployment to decline), and they reduce their hiring efforts during recessions (leading to persistently high unemployment rates). Productivity shocks are the main driver of the business cycle, but are these productivity fluctuations also the sole driver of such employment cycles? In this article, I discuss my recent work showing that productivity fluctuations alone are insufficient to explain employment fluctuations.

Suggested Citation

  • Katrina Borovickova, 2025. "Hiring Puzzle: Why Do Firms Decrease Hiring So Much in Recessions?," Richmond Fed Economic Brief, Federal Reserve Bank of Richmond, vol. 25(10), March.
    • Handle: RePEc:fip:fedreb:99709
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