Declining Job Reallocation in Europe: The Role of Shocks, Market Power, and Technology

Filippo Biondi, Sergio Inferrera, Matthias Mertens and Javier Miranda ()
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Filippo Biondi: Düsseldorf Institute for Competition Economics
Sergio Inferrera: Queen Mary University of London, School of Economics and Finance
Matthias Mertens: Massachusetts Institute of Technology
Javier Miranda: Halle Institute for Economic Research (IWH), Friedrich-Schiller University, and CompNet

No 2025-004, Jena Economics Research Papers from Friedrich-Schiller-University Jena

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 economic 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’ employment has become less responsive to productivity shocks. However, the dispersion 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; job reallocation; productivity; responsiveness of labor demand; market power; technology; European cross-country data (search for similar items in EconPapers)
JEL-codes: D24 D43 J21 J23 J42 L11 L25 (search for similar items in EconPapers)
Date: 2025-03-20
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Persistent link: https://EconPapers.repec.org/RePEc:jrp:jrpwrp:2025-0004

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