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Hiring and Firing: A Tale of Two Thresholds

Booth, Alison L and Chen, Yu-Fu and Zoega, Gylfi (2002) 'Hiring and Firing: A Tale of Two Thresholds.' Journal of Labor Economics, 20 (2). pp. 217-248. ISSN 0734-306X

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The negative effect of quits on the willingness of firms to provide on-the-job training is well documented in the theoretical literature. Here we explore the strength of this effect by solving a firm's dynamic optimization problem where there is uncertainty about future productivity and nonzero firing costs. We find that the degree to which quit rates affect hiring depends on the ratio of firing to hiring costs. As this ratio rises, the negative effect of quits becomes less important, eventually reversing itself. We also describe how quit rates affect the firing decision. We highlight some testable implications of our analysis.

Item Type: Article
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Social Sciences > Economics, Department of
Faculty of Social Sciences > Institute for Social and Economic Research
Depositing User: Jim Jamieson
Date Deposited: 18 Jul 2012 11:07
Last Modified: 29 Jan 2014 12:02

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