Working Paper

Vacancy Chains

Abstract: Replacement hiring—recruitment that seeks to replace positions vacated by workers who quit—plays a central role in establishment dynamics. We document this phenomenon using rich microdata on U.S. establishments, which frequently report no net change in their employment, often for years at a time, despite facing substantial gross turnover in the form of quits. We devise a tractable model in which replacement hiring is driven by a novel structure of frictions, combining firm dynamics, on-the-job search, and investments into job creation that are sunk at the point of replacement. A key implication is the emergence of vacancy chains. Quantitatively, the model reconciles the incidence of replacement hiring with the large dispersion of labor productivity across establishments, and largely replicates the empirical volatility and persistence of job creation and, thereby, unemployment.

Keywords: Quits; replacement hiring; unemployment; vacancies; business cycles;

JEL Classification: E32; J63; J64; J60;

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Bibliographic Information

Provider: Federal Reserve Bank of Philadelphia

Part of Series: Working Papers

Publication Date: 2022-08-19

Number: 22-23