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Replacement hiring and the productivity-wage gap
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 ...
Replacement hiring—recruitment that seeks to replace positions vacated by workerswho quit—plays a central role in establishment dynamics. We document thisphenomenon using rich microdata on U.S. establishments, which frequently report nonet change in their employment, often for years at a time, despite facing substantial grossturnover in the form of quits. We propose a model in which replacement hiring is drivenby the presence of a putty-clay friction in the production structure of establishments.Replacement hiring induces a novel positive feedback channel through which an initialrise in ...