Cyclical Reallocation of Workers Across Large and Small Employers

Search-and-matching models with on-the-job search and firm size yield the prediction that job-to-job flows reallocate workers from smaller to larger firms. Recent papers have extended such models to explain the cyclicality of employment at large vs. small firms. In this paper, we use linked employer-employee data for the U.S. to provide direct evidence on worker reallocation by firm size. We find that job-to-job flows do not generally move workers from smaller to larger employers. Instead, we show that workers moving directly from one job to another more frequently move from large firms to small firms than the reverse. This is despite the fact that large businesses rely more on poaching workers from other firms when hiring and small businesses hire largely from the pool of nonemployed, results that are consistent with the theory. Regarding the cyclical nature of this reallocation, we find that poaching hires are highly procyclical for both large and small firms. Yet despite the cyclical nature of poaching, net reallocation across firm size classes via poaching is relatively stable across the business cycle. The implication is that net poaching by size class is relatively small in magnitude at all phases of the cycle. We find more supportive evidence of the predictions of recent theories regarding net poaching between small and large firms in times of tight labor markets when we focus on mature firms. Even here however the quantitative effects are small.