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Firm Dynamics With Labor Market Sorting

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  • Andreas Gulyas

Abstract

I develop a multi-worker firm model with search frictions, job-to-job transitions, firm dynamics and worker-firm complementarities to study the employment dynamics at the establishment level. Due to the complementarities in production, the ideal worker type changes after productivity shocks, which leads firms to adjust the skill composition of their workforce. Hence, the relationship between changes in workforce quality and firm growth rates in the data informs the strength of complementarities. Using German social security data, I document how firms reorganize the skill composition of their workforce. The estimated model matches many salient facts of establishment level employment dynamics by firm growth rates such as poaching rates, firm size distributions, and the characteristic hockey-stick patterns of the establishment level hire and separation rates by firm growth rates. I decompose the output costs of search frictions and show that the misallocation of jobs and workers across firms generate significant output losses. I conclude that assortative labor market matching is key to understand establishment level employment dynamics.

Suggested Citation

  • Andreas Gulyas, 2020. "Firm Dynamics With Labor Market Sorting," CRC TR 224 Discussion Paper Series crctr224_2020_181, University of Bonn and University of Mannheim, Germany.
    • Handle: RePEc:bon:boncrc:crctr224_2020_181
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    File URL: https://www.crctr224.de/research/discussion-papers/archive/dp181
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    More about this item

    Keywords

    Firm Dynamics; Labor Market Sorting; Worker Flows;
    All these keywords.

    JEL classification:

    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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