Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/210712 
Year of Publication: 
2018
Series/Report no.: 
Staff Report No. 860
Publisher: 
Federal Reserve Bank of New York, New York, NY
Abstract: 
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.
Subjects: 
replacement hiring
productivity-wage gap
unemployment
labor share
efficiency
JEL: 
E32
J63
J64
Document Type: 
Working Paper

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