Labor Market Flows in the Cross Section and Over Time 20 March 2011

Many theoretical models of labor market search imply a tight link between worker flows (hires and separations) and job gains and losses at the employer level. Partly motivated by these theories, we exploit establishment-level data from U.S. sources to study the relationship between worker flows and job flows in the cross section and over time. We document strong, highly nonlinear relationships of hiring, quit and layoff rates to employer growth in the cross section. We also evaluate how well various theoretical models and views fit the patterns in the data. Aggregate fluctuations in hires and layoffs are well captured by empirical specifications that impose a tight cross-sectional link between worker flows and job flows. Aggregate fluctuations in quits are not. Allowing the cross-sectional quit relationship to vary with aggregate conditions leads to a remarkable improvement in fit for quits and improves the fit for other worker flows as well. Overall, we find that incorporating the variation in the cross sectional distribution of job flows across employers has substantial explanatory power in accounting for aggregate worker flows relative to only taking into account standard aggregate labor market variables. Finally, we use our preferred statistical models – in combination with data on the cross-sectional distribution of establishment growth rates – to construct synthetic JOLTS-type measures of hires, separations, quits and layoffs back to 1990.