Slow to Hire, Quick to Fire: Employment Dynamics with Asymmetric Responses to News
61 Pages Posted: 10 Feb 2017 Last revised: 27 Apr 2017
Date Written: April 25, 2017
Concave hiring rules imply that firms respond more to bad shocks than to good shocks. They provide a unified explanation for several seemingly unrelated facts about employment growth in macro and micro data. In particular, they generate countercyclical movement in both aggregate conditional “macro” volatility and cross-sectional “micro” volatility, as well as negative skewness in the cross-section and in the time series at different levels of aggregation. Concave establishment-level responses of employment growth to TFP shocks estimated from Census data induce significant skewness, movements in volatility and amplification of bad aggregate shocks.
Keywords: business cycles, time varying volatility, asymmetric adjustment, skewness
JEL Classification: D2, D8, E2, J2
Suggested Citation: Suggested Citation