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: Firms face trade-offs when hiring through the market and referral channels. This paper proposes a stochastic search and matching model to analyze how these trade-offs explain the cyclical behavior of a firm's optimal market and referral hiring rates. Besides the standard frictional market matching, referral matching is congestive due to the presence of job-seekers in the job-informer's or job-seeker's social network. At the calibrated steady state, relative to the market, referral hiring is more likely to result in a good match, is less costly, but is less likely to result in a match. This quantity-quality-cost trade-off characterizes a firm's optimal hiring choices. Three types of shocks are considered independently: labor productivity shocks, market match quality shocks, and referral match quality shocks. With shocks to labor productivity and referral match quality, the optimal market hiring is countercyclical, and the optimal referral hiring is pro-cyclical. This result is consistent with the empirical evidence of firms' hiring in the U.S. during the recessionary and non-recessionary years. Shocks to labor productivity least explain the observed cyclical variation of optimal hiring, but they most explain the observed cyclical variation of market tightness. Shocks to market match quality most explain the observed cyclical movements of optimal hiring, but they least explain the observed cyclical variation of the market tightness. Shocks to referral match quality lie between shocks to labor productivity and market match quality in terms of explaining the variation in the optimal hiring and 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 through employee referrals and the market channel during a given survey year. This paper develops and estimates a deterministic Diamond-Mortensen-Pissarides (DMP) search and matching model that studies a firm’s optimal market and referral hiring decisions. At the estimated steady state, relative to the referrals, the market channel has a higher matching rate, is associated with a higher hiring cost, but has a lower probability of the match being good. This quantity-quality-cost tradeoff characterizes a firm’s optimal hiring decisions. As a result, referred workers earn higher wages than the market-matched workers. 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 a wage inequality favoring referred workers. Regarding the policy implications of the model, higher unemployment benefits decrease vacancy postings, which in turn increase the unemployment rate, reduce market tightness, encourage market hiring, and discourage referral hiring.

Work in Progress

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

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