TY - JOUR
T1 - The importance of hiring frictions in business cycles
AU - Faccini, Renato
AU - Yashiv, Eran
N1 - Publisher Copyright:
Copyright © 2022 The Authors.
PY - 2022/7
Y1 - 2022/7
N2 - Hiring is a costly activity reflecting firms' investment in their workers. Microdata show that hiring costs involve production disruption. Thus, cyclical fluctuations in the value of output, induced by price frictions, have consequences for the optimal allocation of hiring activities. We outline a mechanism based on cyclical markup fluctuations, placing emphasis on hiring frictions interacting with price frictions. This mechanism generates strong propagation and amplification of all key macroeconomic variables in response to technology shocks and mutes the traditional transmission of monetary policy shocks. A local projection analysis of aggregate U.S. data shows that the empirical results, including the cyclicality of markups, are consistent with the model's impulse response functions.
AB - Hiring is a costly activity reflecting firms' investment in their workers. Microdata show that hiring costs involve production disruption. Thus, cyclical fluctuations in the value of output, induced by price frictions, have consequences for the optimal allocation of hiring activities. We outline a mechanism based on cyclical markup fluctuations, placing emphasis on hiring frictions interacting with price frictions. This mechanism generates strong propagation and amplification of all key macroeconomic variables in response to technology shocks and mutes the traditional transmission of monetary policy shocks. A local projection analysis of aggregate U.S. data shows that the empirical results, including the cyclicality of markups, are consistent with the model's impulse response functions.
KW - Business cycles
KW - confluence of hiring and price frictions
KW - hiring as investment
KW - intertemporal allocation
KW - markup cyclicality
KW - propagation and amplification
UR - http://www.scopus.com/inward/record.url?scp=85134269471&partnerID=8YFLogxK
U2 - 10.3982/QE1512
DO - 10.3982/QE1512
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AN - SCOPUS:85134269471
SN - 1759-7323
VL - 13
SP - 1101
EP - 1143
JO - Quantitative Economics
JF - Quantitative Economics
IS - 3
ER -