Working Papers

Abstract: How does uncertainty in high-order beliefs influence firms’ hiring decisions? I consider a static, general equilibrium model with demand spillovers and dispersed information where ambiguity-averse firms lack confidence in the joint distribution of their signals. This lack of confidence, together with positive demand externalities, induces an asymmetric treatment of information. When observing good news, firms act as if others don’t share the same positive outlook; when observing bad news, they act as if theirs is the common view in the economy. I show that ambiguity induces a downward-shifted and concave hiring response to signals which leads to (i) lower aggregate employment growth that is (ii) more dispersed and (iii) more left-skewed in the cross-section. Using a measure of ambiguity based on analyst forecast dispersion, I exploit cross-industry differences in ambiguity and find evidence supporting these predictions and model-implied comovement patterns. A calibrated model successfully matches targeted and untargeted moments and delivers concave hiring rules consistent with estimates in the literature.

Published Work

Policy Work