Research Interests : Macro Labor - Search and Matching, Social Networks, Inequality, and Economic Theory

Papers

"The Cyclical Behavior of a Firm's Optimal Market and Referral Hiring (PDF)

Abstract: Empirical evidence from the United States (U.S.) and the European Union (EU) shows that referral hiring is procyclical, while market hiring is countercyclical, with labor productivity. I build and calibrate a stochastic search-and-matching model in which firms choose between market and referral hiring. Expected match quality is endogenous, and referred workers expect to earn 47% higher wages. Hiring choices, therefore, reflect a quantity--quality--cost trade-off. On average, the referral channel reaches more applicants and yields a higher chance of a good fit, but it has a higher cost per hire than the market channel. I also allow firms to favor referred candidates through a preference-bias wedge in evaluation and conversion to hires. I study three aggregate environments: productivity shocks only; a linked separation-risk specification in which separations are procyclical with productivity; and a joint-shock specification in which separation risk fluctuates independently. I show that turnover risk strengthens cyclical reallocation across channels. It does so by shifting the expected match duration and vacancy posting. Quantitatively, the linked and joint-shock regimes generate larger hiring fluctuations than the productivity-only specification. They account for about 53--60% of cyclical variation in market hiring and 50-56% in referral hiring in the targeted U.S. economy. By contrast, the productivity-only economy delivers the smallest movements. It explains about 31--35% of cyclical hiring variation in the U.S.

"Market vs Referral Hiring: Implications on Aggregate Welfare, Match Quality and Wage Inequality (draft undergoing changes )  with Yun Pei

Abstract: Empirical evidence from the Survey of Consumer Expectations (SCE) for the United States over 2013--2021 indicates that, on average, about 50% of workers hired in a given year are hired through either employee referrals or the market channel. This paper builds and calibrates a deterministic Diamond--Mortensen--Pissarides (DMP) search-and-matching model without on-the-job search to study what governs a firm’s optimal market and referral hiring decisions. At the calibrated steady state, we find that, relative to the referral channel, the market channel has a higher matching rate and a higher hiring cost, but a lower probability that the match is good. This quantity–quality–cost tradeoff characterizes a firm’s optimal hiring decisions. Furthermore, I simulate the model to show that the market hiring rate decreases and the referral hiring rate increases with labor productivity, implying higher aggregate match quality and an expected wage gap that favors referred applicants. On the policy side, higher unemployment benefits decrease vacancy postings, which in turn increase the unemployment rate, reduce market tightness, encourage market hiring, and discourage referral hiring. The simulation exercise suggests that social welfare peaks at a benefit level 17% above the calibrated steady-state level, with welfare gains on the order of 0.4%.

Work in Progress

"A Dynamic Model of a Firm's Market and Referral Hiring"

"Optimal Unemployment Insurance and Firm's Market & Referral Hiring "