Open AccessThe importance of hiring frictions in business cycles
Author(s) -
Faccini Renato,
Yashiv Eran
Publication year - 2022
Publication title -
quantitative economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 4.062
H-Index - 27
eISSN - 1759-7331
pISSN - 1759-7323
DOI - 10.3982/qe1512
Subject(s) - microdata (statistics) , economics , business cycle , impulse response , monetary economics , monetary transmission mechanism , monetary policy , microeconomics , macroeconomics , credit channel , inflation targeting , mathematical analysis , population , demography , mathematics , sociology , census
Hiring is a costly activity reflecting firms' investment in their workers. Microdata show 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.