DP12343 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, Felix Wellschmied
Publication Date: September 2017
Date Revised: August 2019
Keyword(s): Aggregate fluctuations, employment growth, Job flows, job-to-job transitions, labor demand, separation shocks, worker churn, worker flows
JEL(s): E20, E24, E32, J23, J63
Programme Areas: Monetary Economics and Fluctuations
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=12343

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.