Negative Shocks, Job Creation, and Selection. WWWforEurope Working Paper No. 11

Catia Montagna, Hassan Molana, Daniel Kopasker and Holger Görg
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Daniel Kopasker: University of Dundee

in WIFO Studies from WIFO

Abstract: High inter-country variability characterises the responsiveness of both output to (exogenous) shocks and employment to output contractions. We argue that inter-country differences in firm-size distributions contribute to explaining this variability. Within an open economy model, we show that competitive selection processes are an important channel through which a shock affects aggregate employment. Intra-industry selection is then shown to influence the effectiveness of active labour market policies in countering the employment and welfare effects of a negative shock. We estimate a measure of the shape parameter of firm size distribution and study its effect on the employment-output relationship for a number of OECD countries. Our results confirm the key predictions of the theory.

Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:wfo:wstudy:46858

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