Worker Matching and Firm Value

41 Pages Posted: 5 Mar 2013

See all articles by Espen R. Moen

Espen R. Moen

BI Norwegian Business School; Centre for Economic Policy Research (CEPR)

Eran Yashiv

Tel Aviv University - Eitan Berglas School of Economics; CEP, LSE; IZA Institute of Labor Economics; Centre for Economic Policy Research (CEPR)

Date Written: March 2013

Abstract

This paper studies the hiring and firing decisions of firms and their effects on firm value. This is done in an environment where the productivity of workers depends on how well they match with their co-workers and the firm acts as a coordinating device. Match quality derives from a production technology whereby workers are randomly located on the Salop circle, and depends negatively on the distance between the workers. It is shown that a worker's contribution in a given firm changes over time in a nontrivial way as co-workers are replaced with new workers. The paper derives optimal hiring and replacement policies, including an optimal stopping rule, and characterizes the resulting equilibrium in terms of employment, firm output and the distribution of firm values. The paper stresses the role of horizontal differences in worker productivity, as opposed to vertical, assortative matching issues. Simulations of the model reveal a rich pattern of worker turnover dynamics and their connections to the resulting firm value and age distributions.

Keywords: complementarity, firing, firm value, hiring, match quality, optimal stopping, Salop circle, worker value

JEL Classification: E23, J62, J63

Suggested Citation

Moen, Espen R. and Yashiv, Eran, Worker Matching and Firm Value (March 2013). CEPR Discussion Paper No. DP9375, Available at SSRN: https://ssrn.com/abstract=2228554

Espen R. Moen (Contact Author)

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Eran Yashiv

Tel Aviv University - Eitan Berglas School of Economics ( email )

P.O. Box 39040
Ramat Aviv, Tel Aviv, 69978
Israel
+972 3 640 9715 (Phone)
+972 3 640 9908 (Fax)

HOME PAGE: http://www.tau.ac.il/~yashiv/

CEP, LSE ( email )

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IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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