Replacement Hiring and the Productivity Wage-Gap joint with Sushant Acharya

Abstract:

A large and growing share of hires in the US are replacement hires. This increase coincides with a growing productivity-wage gap. We connect these trends by building a model where firms post long-lived vacancies and engage in on-the-job search for more productive workers. These features improve a firm's bargaining position while raising workers' job insecurity and the wedge between hiring and meeting rates. All three channels lower wages while raising productivity.  Quantitatively, increased replacement hiring explains half the increase in the productivity-wage gap. The socially efficient outcome features fewer low-productivity jobs and a 10% narrower productivity-wage gap.