Occupational Reallocation Within and Across Firms: Implications for labor-market polarization

This study analyzes how labor-market frictions interact with firms' decisions to reallocate workers across different occupations during labor-market polarization. We compare the patterns of occupational reallocation within and across firms in the United States and Germany in recent years. We find that within-firm reallocation contributes significantly to the decline in employment in routine occupations in Germany, but much less in the United States. We construct a general equilibrium model of firm dynamics and find that the model with different firing taxes can replicate the difference in firm-level adjustment patterns across these countries. We conduct two counterfactual experiments, highlighting the different roles played by the within-firm cost of reorganizing occupational mix and across-firm frictions created by firing taxes.