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...

Purpose This paper aims to test the hypothesis that the effect of production slowdown on labour demand can be muted by labour hoarding. Design/methodology/approach This study adopts a production function approach, using data from Malta, a small state in the EU. Findings The results confirm the...

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...