Research Insights: How Do Job and Worker Flows Respond to Firms' Idiosyncratic Technology and Demand Shocks?

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Feb 2021
Permanent demand shocks are the main driver of labor adjustments. A one standard deviation demand shock increases the net employment rate by 6 percentage points in the long run, while a technology shock increases it by 0.5. Transitory demand shocks have much smaller impacts. When hit by a permanent demand shock, firms adjust fast and symmetrically. Most of the labor change occurs within a year. If the shock is positive, firms adjust by increasing hires. If the shock is negative, they increase separations without reducing hires.