Timo Sauerbier (FAU Erlangen-Nürnberg)
Tim Kovalenko
Labor market sorting is pro-cyclical in Germany. That is, high-wage firms recruit fewer high-wage workers during economic downturns. In this paper, we introduce two channels that potentially explain this phenomenon. First, high-wage firms reduce vacancy posting relatively more during recessions than low-wage firms do. Second, high-wage firms lower their recruiting intensity more during recessions than low-wage firms do. Recruiting intensity, in turn, is associated with the size of applicant pools in the recruiting process. Thus, high-wage firms potentially hire fewer high-wage workers because they reduce their hiring efforts more in economic downturns than low-wage firms. To validate these observations, we build a search-and-matching model featuring labor market sorting and recruiting intensity. The model confirms our intuitive interpretation of the empirical observations: High-productive firms can attract more productive workers by posting more vacancies and setting a higher recruiting intensity. However, since posting vacancies and recruiting are costly, highly productive firms must reduce these margins more in recessions than low-productive firms. This results in cyclical sorting.