Discussion Paper Details

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Title: Worker Churn in the Cross Section and Over Time: New Evidence from Germany

Author(s): Rüdiger Bachmann, Christian Bayer, Christian Merkl, Stefan Seth, Heiko Stüber and Felix Wellschmied

Publication Date: September 2017

Keyword(s): Aggregate fluctuations, employment growth, Job flows, job-to-job transitions, labor demand, separation shocks, worker churn and worker flows

Programme Area(s): Monetary Economics and Fluctuations

Abstract: Worker churn, that is, worker flows in excess of job flows, is procyclical in the German labor market. To understand this procyclicality, we study the plant-level connection of churn and employment growth, using the new Administrative Wage and Labor Market Flow Panel from 1975 to 2014, and find that churn rises in the absolute value of employment growth. Analyzing this V-shaped churn-employment growth nexus by worker skill, age, and tenure, we establish that churn is unlikely to result from plant reorganization but rather from the correction of labor market mismatches. Using a simple dynamic labor demand framework, we argue that the cross-sectional evidence on churn can be interpreted as manifestations of idiosyncratically stochastic separation shocks in conjunction with a time-to-hire friction. These shocks become larger and more predictable during booms leading to procyclical churn, which, as we show, (1) increases almost uniformly across the employment growth distribution, and (2) stems almost exclusively from jobto- job transitions. Procyclical churn, thus, reflects a more active reshuffling of workers towards individually better matches in booms.

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Bibliographic Reference

Bachmann, R, Bayer, C, Merkl, C, Seth, S, Stüber, H and Wellschmied, F. 2017. 'Worker Churn in the Cross Section and Over Time: New Evidence from Germany'. London, Centre for Economic Policy Research.