Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/215285 
Year of Publication: 
2020
Series/Report no.: 
IZA Discussion Papers No. 12889
Publisher: 
Institute of Labor Economics (IZA), Bonn
Abstract: 
Hiring is a costly activity reflecting firms' investment in their workers. Micro-data shows that hiring costs involve production disruption. Thus, cyclical fluctuations in the value of output, induced by price frictions, have consequences for the optimal allocation of hiring activities. We outline a mechanism based on cyclical markup fluctuations, placing emphasis on hiring frictions interacting with price frictions. This mechanism generates strong propagation and amplification of all key macroeconomic variables in response to technology shocks and mutes the traditional transmission of monetary policy shocks. A local projection analysis of aggregate U.S. data shows that the empirical results, including the cyclicality of markups, are consistent with the model's impulse response functions.
Subjects: 
hiring as investment
intertemporal allocation
business cycles
confluence of hiring and price frictions
propagation and amplification
mark up cyclicality
JEL: 
E22
E24
E32
E52
Document Type: 
Working Paper

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