Job Reallocation: Theory and Workplace Evidence

Karen Mumford () and Peter Smith

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: We explore the determinants of job reallocation in this paper. A model which associates technological advances with the process of economic growth is analysed and extended. A consequence of this model is that innovation leads to the creation of new jobs and the destruction of older jobs exhibiting obsolete technology. Data on gross job flows across workplaces are constructed by us from a single panel of workplace data and examined. Substantial simultaneous job creation and destruction are found in a year of strong job growth, suggesting that workplace heterogeneity is an important feature of the Australian labour market. The predictions generated from the theoretical model are then tested on the job flows data. Our results support the key features of the model. We find that employment growth is asymmetrically related to expected changes in demand for the output of the workplace; falls in demand have a negative impact which is substantially larger than the positive impact of increases in demand on employment growth. We also find that the absolute change in employment is lower for workplaces that are larger, older, more capital intensive or operating in a less competitive environment. Changes in skill requirements and relative wages are found to have a positive effect on job reallocation.

Date: 1997-07
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