Worker Flows And Firm Dynamics In A Labour Market Model

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Executive Summary

In this paper the authors build an integrated framework of the labor market in which worker replacement, job creation and job destruction are decided simultaneously at the firm level, providing a rigorous instrument for the analysis of worker flows. The main features of the model are uncertainty related to worker X firm match quality and search frictions. Worker flow components are decided as firms learn about the quality of their matches. A negative correlation between replacement and job creation arises from this mechanism. The model also provides several implications for firm dynamics, which are all confirmed by related empirical papers.

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