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

Papers

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

Abstract: A stochastic search and matching model is proposed to analyze the cyclical behavior of a firm's market and referral hiring. Market hiring is frictional, while referral hiring is congestive. Congestion, in this context, refers to the fraction of unemployed contacts in an employee’s social network. Both market and employee referrals yield good and bad matches. At the steady state, relative to the market, the referral hiring is more likely to generate a good match, less costly to hire, but less likely to result in a match. This quantity-quality-cost trade-off produces an interior solution to a firm's optimal hiring choice. Three types of shocks are considered independently: labor productivity shocks, market and referral match quality shocks. Negative shocks to labor productivity encourage market hiring and discourage referral hiring. This result is consistent with the empirical evidence of firms' hiring in the U.S. during the recessionary and non-recessionary years. Shocks to market match quality least explain the observed cyclical movements of hiring and standard labor market aggregates. Shocks to referral match quality most explain the observed cyclical variation of optimal referral hiring. In contrast, shocks to labor productivity most explain the observed cyclical variation of optimal market hiring and labor market tightness. 

"Market vs Referral Hiring: Implications on Welfare, Aggregate Match Quality and Wage Inequality (PDF) 

Abstract: Empirical evidence from the Survey of Consumer Expectations (SCE) suggests that in the U.S., between 2013 and 2021, on average, about 50% of workers were hired using the employee referral and market channel during a survey year. Moreover, it was also found that firms hired more through the employee referral channel during non-recessionary times. To determine the economic mechanisms governing the firms' hiring decisions, I developed and estimated a deterministic Diamond-Mortensen-Pissarides (DMP) matching model characterized by market frictions and network congestion. The model considers heterogeneous firm-worker matches and firms' simultaneous hiring choice: market and referral. Market hiring typically requires a job posting, whereas referral hiring does not. Match quality can be of two types: good and bad, which can occur through both hiring channels, and they coexist in a steady-state equilibrium. At the steady state, relative to the referral, the market channel has a higher match rate, is associated with a higher hiring cost, but has a lower probability of a good match. Since referrals lead to more productive matches, despite having a lower match rate, the referred workers earn higher expected wages than the market-hired workers. Thus, wage inequality exists at the steady state. Furthermore, the model is simulated to show that the market hiring rate decreases and the referral hiring rate increases with labor productivity, implying a lower aggregate match quality and higher wage inequality. Regarding the policy implications of the model, higher unemployment benefits, by increasing the unemployment rate, reduce market tightness, encourage market hiring, and discourage referral hiring. Counterfactually, higher job posting costs increase (decrease) the market (referral) hiring rate by lowering the market tightness and thus increasing the market job-filling rates. In contrast, larger networks decrease (increase) referral (market) hiring rates by reducing the rate at which the job information is transmitted from an employee to an unemployed contact in her network.

Work in Progress

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

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