Declining job reallocation in Europe: The role of shocks, market power, and technology

Filippo Biondi, Sergio Inferrera, Matthias Mertens and Javier Miranda

No 19/2023, IWH Discussion Papers from Halle Institute for Economic Research (IWH)

Abstract: We study changes in job reallocation in Europe after 2000 using novel micro- aggregated data that we collected for 19 European countries. In all countries, we document broad-based declines in job reallocation rates that concern most econo- mic sectors and size classes. These declines are mainly driven by dynamics within sectors, size, and age classes rather than by compositional changes. Simultaneously, employment shares of young firms decline. Consistent with US evidence, firms’ em- ployment has become less responsive to productivity shocks. However, the disper- sion of firms’ productivity shocks has decreased too. To enhance our understanding of these patterns, we derive and apply a firm-level framework that relates changes in firms’ market power, labor market imperfections, and production technology to firms’ responsiveness and job reallocation. Using German firm-level data, we find that changes in markups and labor output elasticities, rather than adjustment costs, are key in rationalizing declining responsiveness.

Keywords: business dynamism; European cross-country data; job reallocation; market power; productivity; responsiveness of labor demand; technology (search for similar items in EconPapers)
JEL-codes: D24 D43 J21 J23 J42 L11 L25 (search for similar items in EconPapers)
Date: 2025, Revised 2025
New Economics Papers: this item is included in nep-bec, nep-com, nep-eff, nep-ent, nep-lma and nep-tid
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:iwhdps:192023

DOI: 10.18717/dpaqv9-h731

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