TY  - JOUR
AU  - House,Christopher L.
AU  - Zhang,Jing
TI  - Layoffs, Lemons and Temps
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 17962
PY  - 2012
Y2  - March 2012
UR  - http://www.nber.org/papers/w17962
L1  - http://www.nber.org/papers/w17962.pdf
N1  - Author contact info:
Christopher House
University of Michigan
Department of Economics
238 Lorch Hall
Ann Arbor, MI  48109-1220
Tel: 734/764-2364
Fax: 734/764-2769
E-Mail: chouse@umich.edu

Jing Zhang
University of Michigan
Department of Economics
611 Tappan Street
Ann Arbor, MI 48109-1220
E-Mail: jzhang@umich.edu
AB  - We develop a dynamic equilibrium model of labor demand with adverse selection. Firms learn the quality of newly hired workers after a period of employment. Adverse selection makes it costly to hire new workers and to release productive workers. As a result, firms hoard labor and under-react to labor demand shocks. The adverse selection problem also creates a market for temporary workers. In equilibrium, firms hire a buffer stock of permanent workers and respond to changing business conditions by varying their temp workers. A hiring subsidy or tax can improve welfare by discouraging firms from hoarding too many productive workers.
ER  -