Firm-level shocks and labor adjustments

Mikael Carlsson, Julian Messina and Oskar Skans

No 2014:28, Working Paper Series from IFAU - Institute for Evaluation of Labour Market and Education Policy

Abstract: We analyze how firms adjust their labor in response to idiosyncratic shifts in their production function and demand curves using a unique data-set of Swedish manufacturing firms. We show that permanent shocks to firm-level demand is a main driving force behind both job and worker reallocation. In contrast, shocks to physical productivity and temporary demand shocks have a very limited impact on firm-level employment despite being important determinants of other firm-level fundamentals. We also present evidence suggesting that the adjustment to permanent demand shocks is fairly unconstrained. Most notably, firms primarly downsize through increased separations of both short- and long-tenured workers even when they could have adjusted their employment through reduced hires.

Keywords: Technology; demand; job creation; rigidities; worker flows (search for similar items in EconPapers)
JEL-codes: C33 J23 J63 O33 (search for similar items in EconPapers)
Pages: 59 pages
Date: 2014-12-09
New Economics Papers: this item is included in nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Working Paper: Firm-Level Shocks and Labor Adjustments (2014)
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