Firm-Level Shocks and Labour Flows

Mikael Carlsson, Julian Messina and Oskar Skans

The Economic Journal, 2021, vol. 131, issue 634, 598-623

Abstract: We analyse how labour flows respond to permanent idiosyncratic shifts in firm-level production functions and demand curves using very detailed Swedish micro data. Shocks to firms’ physical productivity have only modest effects on firm-level employment decisions. In contrast, we document rapid and substantial employment adjustments through hires and separations in response to firm-level demand shocks. The choice of adjustment margin depends on the sign of the shock: firms adjust through increased hires if these shocks are positive and through increased separations if the shocks are negative.

Date: 2021
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