Firms’ employment dynamics and the state of the labor market

Karolina Stadin ()
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Karolina Stadin: Department of Economics, Uppsala University, Postal: P O Box 513, SE-751 20 Uppsala, Sweden

No 2015:20, Working Paper Series from IFAU - Institute for Evaluation of Labour Market and Education Policy

Abstract: According to search and matching theory, a greater availability of unemployed workers should make it easier for a firm to fill a vacancy but more vacancies at other firms should make recruitment more difficult. But what can we say about the expected magnitudes of these effects on firms’ employment dynamics? In this paper, I simulate a theoretical model featuring search frictions in the labor market, imperfect competition in the product market and quadratic adjustment costs. The simulations show quite small employment effects of typical shocks to the number of vacancies in the local labor market and very small effects of typical shocks to the number of unemployed. The employment effects are smaller in recessions than in booms. Estimation of an employment equation using panel data for Swedish firms suggests that neither the number of unemployed nor the number of vacancies in the local labor market are important for firms’ employment dynamics. Thus, the empirical results are in line with the predictions from the theoretical simulations.

Keywords: Employment dynamics; search and matching frictions (search for similar items in EconPapers)
JEL-codes: E24 J23 J63 J64 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2015-09-22
New Economics Papers: this item is included in nep-dge, nep-lab and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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