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

50 Pages Posted: 30 Jun 2008 Last revised: 21 Nov 2019

See all articles by Jason Faberman

Jason Faberman

Federal Reserve Bank of Chicago; Bureau of Labor Statistics - Office of Employment and Unemployment Statistics

Eva Nagypal

Northwestern University - Department of Economics; Northwestern University - Institute for Policy Research

Date Written: June 13, 2008

Abstract

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 establishment's 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.

Suggested Citation

Faberman, Jason and Nagypal, Eva, Quits, Worker Recruitment, and Firm Growth: Theory and Evidence (June 13, 2008). FRB of Philadelphia Working Paper No. 08-13, Available at SSRN: https://ssrn.com/abstract=1153439 or http://dx.doi.org/10.2139/ssrn.1153439

Jason Faberman (Contact Author)

Federal Reserve Bank of Chicago

230 South LaSalle Street
Chicago, IL 60604
United States

Bureau of Labor Statistics - Office of Employment and Unemployment Statistics ( email )

2 Massachusetts Avenue NE
Washington, DC 20212
United States

Eva Nagypal

Northwestern University - Department of Economics ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

Northwestern University - Institute for Policy Research ( email )

2040 Sheridan Road
Evanston, IL 60208-4100
United States

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