Abstract:
Replacement hiring—recruitment that seeks to replace positions vacated by workers who quit—is a prominent feature of empirical firm dynamics. We document this phenomenon by establishing a set of novel facts: 1) many establishments exhibit no net change in employment over time, despite nontrivial quit rates; 2) higher quit rates are associated with lower degrees of net inaction; and 3) rates of inaction over net changes decay slowly by frequency (quarterly, yearly, bi-yearly etc.) suggesting that high-frequency net changes are exactly reversed at lower frequencies. A model of replacement hiring that is calibrated to match these empirical facts reveals a novel positive feedback channel through which an initial rise in vacancy posting in an expansion induces still more vacancy posting to replace employees who are poached. This vacancy chain in turn induces volatile responses of vacancies, and thereby unemployment, to cyclical shocks.
