Persistence of Shocks and the Reallocation of Labor

42 Pages Posted: 20 Jul 2016 Last revised: 5 Jan 2019

See all articles by Timotheos Angelidis

Timotheos Angelidis

University of Peloponnese - Department of Economics

Alexander Benos

University of Piraeus - Department of Banking and Financial Management; National Bank of Greece

Stavros Antonios Degiannakis

Department of Economic and Regional Development, Panteion University of Political and Social Sciences

Date Written: 2016-07-12

Abstract

This paper proposes a theoretical and quantitative analysis of the reallocation of labor across firms in response to idiosyncratic shocks of different persistence. Creating and destroying jobs is costly and workers are paid a share of the value of the marginal worker. The model predicts that employment and labor costs react differently to transitory shocks and permanent shocks. Quantitative evaluation of the model on a panel of French firms shows the model’s performance. Modest adjustment costs are needed to reproduce observed job reallocation and inaction rates. Removing adjustment costs leads to productivity gains of 1% at the steady state. These gains are 50% larger in a economy with only transitory shocks and an order of magnitude lower in an economy with only permanent shocks. Bargaining dampens the reallocation of labor across firms, leading to larger efficiency losses from adjustment costs.

Keywords: Firm Dynamics, Adjustment Costs, Misallocation, Persistence of Shocks

JEL Classification: E24, J21, J23

Suggested Citation

Angelidis, Timotheos and Benos, Alexander V. and Degiannakis, Stavros Antonios, Persistence of Shocks and the Reallocation of Labor (2016-07-12). FRB St. Louis Working Paper No. 2016-14, Available at SSRN: https://ssrn.com/abstract=2812048 or http://dx.doi.org/10.20955/wp.2016.014

Timotheos Angelidis (Contact Author)

University of Peloponnese - Department of Economics ( email )

Tripolis, 22100
Greece

Alexander V. Benos

University of Piraeus - Department of Banking and Financial Management ( email )

80 Karaoli & Dimitriou Str.
18534 Piraeus, 185 34 -GR
Greece

National Bank of Greece ( email )

86 Eolou Str.
10232 Athens
Greece

Stavros Antonios Degiannakis

Department of Economic and Regional Development, Panteion University of Political and Social Sciences ( email )

136 Sygrou
Athens
Greece

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