TY  - RPRT
        AU  - Faccini, Renato
AU  - Yashiv, Eran
        TI  - The Importance of Hiring Frictions in Business Cycles
        PY  - 2020/Jan/
        PB  - Institute of Labor Economics (IZA)
        CY  - Bonn
        T2  - IZA Discussion Paper
        IS  - 12889
        UR  - https://www.iza.org/publications/dp12889
        AB  - Hiring is a costly activity reflecting firms' investment in their workers. Micro-data shows that hiring costs involve production disruption. Thus, cyclical fluctuations in the value of output, induced by price frictions, have consequences for the optimal allocation of hiring activities. We outline a mechanism based on cyclical markup fluctuations, placing emphasis on hiring frictions interacting with price frictions. This mechanism generates strong propagation and amplification of all key macroeconomic variables in response to technology shocks and mutes the traditional transmission of monetary policy shocks. A local projection analysis of aggregate U.S. data shows that the empirical results, including the cyclicality of markups, are consistent with the model's impulse response functions.
        KW  - propagation and amplification
KW  - confluence of hiring and price frictions
KW  - business cycles
KW  - intertemporal allocation
KW  - hiring as investment
KW  - mark up cyclicality
        ER  -