David Andolfatto on Asymmetry

He writes,

the labor market is a market for productive relationships. It takes time to build up relationship capital. It takes no time at all to destroy relationship capital.

Pointer from Mark Thoma. Note that this should make firms hesitant to fire workers, because of the cost of having to re-fill the position if it turns out that it was needed. I believe that this reinforces the asymmetry.

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4 Responses to David Andolfatto on Asymmetry

  1. Matt Young says:

    If the firm hesitates just right, then the service time for firings and hiring tend to equalize, enforcing symmetry. If the firm tends to hesitate too much during the growth phase, then it gets caught short, it has to mass fire, and selectively rehire, enforcing asymmetry. When I look for asymmetry, I ask: Why we hold to a semi-stable growth trend longer than we should.

  2. Handle says:

    When I read ‘relationship capital’ I was wondering if there was an insight as to the impact of no-fault divorce.

  3. andrew' says:

    This alone goes a long way to a theory of labor cycles because management isn’t really in control or fully knowledgeable.

  4. Noah Yetter says:

    “…this should make firms hesitant to fire workers, because of the cost of having to re-fill the position if it turns out that it was needed.”

    Empirically, this is true.

    The media caricature of business has management ready, willing, and eager to fire workers on a whim. Reality, not so much. Hiring and training are so brutally expensive that in all but the most liquid labor markets you do everything you can to salvage an employee’s prospects, and fire them as an absolute last resort (barring acute misconduct).

    I think the population at large doesn’t internalize this, even though they see it in their own workplaces, is because we all believe we are special.

    Academics don’t internalize this because most of them have never worked a real job outside their teenage years.

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