Slow to Hire, Quick to Fire: Employment Dynamics with Asymmetric Responses to News

This paper studies the distribution of employment growth when firms adjust asymmetrically to dispersed but correlated signals. If hiring decisions respond more to bad news than to good news, both aggregate conditional volatility ("macro-volatility") and the cross sectional dispersion of employment growth ("micro-volatility") are countercyclical, as in the data. Fluctuations in both macro and micro volatility emerge endogenously in response to news shocks and do not require exogenous changes in volatility. Establishment level Census data confirm other implications of the mechanism: in particular, employment growth (contrary to TFP shocks) is negatively skewed in both the cross section and the time series, and employment responds more to bad than to good TFP shocks.