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We combine four data sources to build a unique dataset that includes detailed information about firms' employment, the work history and wages of all their workers, value added at a quarterly frequency and vacancy postings for, essentially, the universe of Danish firms in 2002-2009. We estimate a statistical process with permanent and transitory shocks on value added. We find that permanent value added shocks are significantly related to employment growth but transitory shocks are uncorrelated with employment growth, and similarly for the probability of posting a vacancy. Permanent shocks affect employment growth both through the hiring and the separation rate, and the effect on the poaching rate is two times greater than on the transition rates to and from unemployment. Finally, we find that the effect of permanent shocks on ability-weighed flows is twice as large as on unweighed flows.
