Replacement Hiring and the Productivity-Wage Gap

51 Pages Posted: 12 Jul 2018

See all articles by Sushant Acharya

Sushant Acharya

Federal Reserve Banks - Federal Reserve Bank of New York

Shu Lin Wee

Carnegie Mellon University, Tepper School of Business

Date Written: June , 2018

Abstract

A large and growing share of hires in the United States are replacement hires. This increase coincides with a growing productivity-wage gap. We connect these trends by building a model where firms post long-lived vacancies and engage in on-the-job search for more productive workers. These features improve a firm's bargaining position while raising workers' job insecurity and the wedge between hiring and meeting rates. All three channels lower wages while raising productivity. Quantitatively, increased replacement hiring explains half the increase in the productivity-wage gap. The socially efficient outcome features fewer low-productivity jobs and a 10 percent narrower productivity-wage gap.

Keywords: replacement hiring, productivity-wage gap, unemployment, labor share, efficiency

JEL Classification: E32, J63, J64

Suggested Citation

Acharya, Sushant and Wee, Shu Lin, Replacement Hiring and the Productivity-Wage Gap (June , 2018). FRB of New York Staff Report No. 860, Available at SSRN: https://ssrn.com/abstract=3206904 or http://dx.doi.org/10.2139/ssrn.3206904

Sushant Acharya (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Shu Lin Wee

Carnegie Mellon University, Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

HOME PAGE: http://https://sites.google.com/site/shulinwee/

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