Home About Latest Browse RSS Advanced Search

Federal Reserve Bank of New York
Staff Reports
Replacement hiring and the productivity-wage gap
Sushant Acharya
Shu Lin Wee

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.

Download Summary
Download Full text
Cite this item
Sushant Acharya & Shu Lin Wee, Replacement hiring and the productivity-wage gap, Federal Reserve Bank of New York, Staff Reports 860, 01 Jun 2018.
More from this series
JEL Classification:
Subject headings:
Keywords: replacement hiring; productivity-wage gap; unemployment; labor share; efficiency
For corrections, contact Amy Farber ()
Fed-in-Print is the central catalog of publications within the Federal Reserve System. It is managed and hosted by the Economic Research Division, Federal Reserve Bank of St. Louis.

Privacy Legal