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Employment Cyclicality and Firm Quality

Author

Listed:
  • Lisa B. Kahn
  • Erika McEntarfer
Abstract
Who fares worse in an economic downturn, low- or high-paying firms? Different answers to this question imply very different consequences for the costs of recessions. Using U.S. employer-employee data, we find that employment growth at low-paying firms is less cyclically sensitive. High-paying firms grow more quickly in booms and shrink more quickly in busts. We show that while during recessions separations fall in both high-paying and low- paying firms, the decline is stronger among low-paying firms. This is particularly true for separations that are likely voluntary. Our findings thus suggest that downturns hinder upward progression of workers toward higher paying firms - the job ladder partially collapses. Workers at the lowest paying firms are 20% less likely to advance in firm quality (as measured by average pay in a firm) in a bust compared to a boom. Furthermore, workers that join firms in busts compared to booms will on average advance only half as far up the job ladder within the first year, due to both an increased likelihood of matching to a lower paying firm and a reduced probability of moving up once matched. Thus our findings can account for some of the lasting negative impacts on workers forced to search for a job in a downturn, such as displaced workers and recent college graduates. For example, differential sorting and lack of upward mobility can account for roughly a third of the initial earnings impacts of graduating into a large downturn.

Suggested Citation

  • Lisa B. Kahn & Erika McEntarfer, 2014. "Employment Cyclicality and Firm Quality," NBER Working Papers 20698, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:20698
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    References listed on IDEAS

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    Cited by:

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    2. John Haltiwanger & Henry Hyatt & Erika McEntarfer, 2015. "Cyclical Reallocation of Workers Across Employers by Firm Size and Firm Wage," Working Papers 15-13, Center for Economic Studies, U.S. Census Bureau.
    3. Camilo Morales-Jimenez, 2017. "The Cyclical Behavior of Unemployment and Wages under Information Frictions," Finance and Economics Discussion Series 2017-047, Board of Governors of the Federal Reserve System (U.S.).
    4. Giuseppe Moscarini & Fabien Postel-Vinay, 2016. "Did the Job Ladder Fail after the Great Recession?," Journal of Labor Economics, University of Chicago Press, vol. 34(S1), pages 55-93.
    5. Ahmed Khwaja & Nathan Yang, 2022. "Quantifying the link between employee engagement, and customer satisfaction and retention in the car rental industry," Quantitative Marketing and Economics (QME), Springer, vol. 20(3), pages 275-292, September.
    6. Braunschweig, Luisa & Dauth, Wolfgang & Roth, Duncan, 2024. "Job Mobility and Assortative Matching," IAB-Discussion Paper 202411, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    7. Fraenkel, Rebecca Cannon, 2022. "Local labor markets and job match quality: Teachers," Labour Economics, Elsevier, vol. 78(C).
    8. Amparo Nagore García & Arthur van Soest, 2017. "New job matches and their stability before and during the crisis," International Journal of Manpower, Emerald Group Publishing Limited, vol. 38(7), pages 975-995, October.
    9. Giuseppe Moscarini & Fabien Postel-Vinay, 2016. "Wage Posting and Business Cycles: a Quantitative Exploration," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 19, pages 135-160, January.
    10. José Mustre‐Del‐Río, 2019. "Job Duration over the Business Cycle," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 51(6), pages 1691-1711, September.
    11. Cynthia L. Doniger, 2021. "The Ways the Cookie Crumbles: Education and the Margins of Cyclical Adjustment in the Labor Market," Finance and Economics Discussion Series 2021-019, Board of Governors of the Federal Reserve System (U.S.).
    12. repec:spo:wpmain:info:hdl:2441/5taek6gt3k8m0r69e1j1ombcc5 is not listed on IDEAS
    13. Bo?ena Kade?ábková & Emílie Ja?ová, 2019. "Churn on the labor market in the Czech Republic," Proceedings of Economics and Finance Conferences 9510783, International Institute of Social and Economic Sciences.
    14. Tulio A. Cravo, 2017. "Firm size and business cycles," IZA World of Labor, Institute of Labor Economics (IZA), pages 371-371, June.
    15. repec:hal:spmain:info:hdl:2441/5taek6gt3k8m0r69e1j1ombcc5 is not listed on IDEAS

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    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs

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