Trade Competitiveness and Employment: Job Creation or Job Destruction

This paper empirically examines the impact of fluctuations in international trade competitiveness on employment in the UK manufacturing sector over the period 1999–2010. We find statistically significant but economically small effects of a shock to international trade competitiveness on the level of employment. Our results show that the adjustment process in employment mainly works through job creation. We also find that compared to large firms, small firms contribute more toward job creation than job destruction. Our results that changes in GDP growth rate and average wages are significantly related to employment suggest that the UK labour market significantly responds to market forces. Finally, we find that the effect of changes in the real exchange rate on both job creation and job destruction differs between exporting and non-exporting firms.     

THE EFFECTS OF TAXES ON LABOUR IN A DYNAMIC EFFICIENCY WAGE MODEL*

This paper studies the impact of wage and employment taxes in an intertemporal efficiency wage model. Cases with fixed, linear and quadratic adjustment costs associated with job creation are considered. In general, the model shows that an increase in the employment tax leads to an increase in unemployment, reducing job creation, and has ambiguous effect on wages; whereas an increase in the wage tax reduces wages and has ambiguous impact on unemployment and job creation.     

The cyclical behavior of job creation and job destruction: A sectoral model

Summary Three key features of the employment process in the U.S. economy are that job creation is procyclical, job destruction is countercyclical, and job creation is less volatile than job destruction. These features are also found at the sectoral (goods and services) level. The paper develops, calibrates and simulates a two-sector general equilibrium model that includes both aggregate and sectoral shocks. The behavior of the model economy mimics the job creation and destruction facts. A non-negligible amount of unemployment arises due to the presence of aggregate and sectoral shocks.We thank Jeffrey Campbell, Richard Rogerson and two referees for helpful comments. We are grateful to M.J.D. Powell for providing us with his GETMIN FORTRAN subroutine.     

The importance of firing costs and the Hosios condition in search models with endogenous job destruction

We construct a DSGE search model with endogenous job destruction, incorporating wage rigidities, firing costs and unemployment benefit. We investigate the most important factors in matching the model’s cyclical properties with empirical data, particularly those of job creation rates (JCR) and job destruction rates (JDR). Firing costs assist significantly in explaining the procyclicality of JCR, the negative correlation of JCR and JDR, and the persistence of vacancies. They also decrease the counter-cyclicality of job turnover. We also postulate that the Hosios condition helps explain the negative correlation of JCR and JDR and vacancies’ persistence. Varying wage rigidities and unemployment income, however, do not improve the results.     

The impact of trade liberalization on employment,capital, and productivity dynamics: evidence from the uruguayan manufacturing sector

This paper studies the impact of trade liberalization on labor and capital gross flows and productivity in the Uruguayan Manufacturing Sector. Higher international exposure implied a slightly higher job creation, an important increase in job and capital destruction, and an increase in productivity. Unions dampened these effects. Although not associated with higher creation rates, unions were effective in reducing job and capital destruction but they also reduced productivity growth. Industry concentration mitigated the destruction of jobs but had no effects on job creation or in capital and productivity dynamics.     

JOB FLOWS AND UNEMPLOYMENT IN AN EQUILIBRIUM UNEMPLOYMENT MODEL WITH FIRM‐SPECIFIC SKILL TRAINING*

We introduce productivity enhancing firm‐specific skill training into the labour search model in which the firm‐specific skill training intensity and the job destruction rate are endogenously determined. It is shown that the higher the intensity of such training, the lower the rates of unemployment, job creation and job destruction. The paper's model provides a theoretical framework to understand the often mentioned peculiarity of the Japanese labour market; prevalently low rates of unemployment, job creation and job destruction in Japan are due to its training system which promotes workers to acquire firm‐specific skills.     

Worker flows, job flows and firm wage policies

Like many transition economies, Slovenia is undergoing profound changes in the workings of the labour market with potentially greater flexibility in terms of both wage and employment adjustment. To investigate the impact of these changes, we use unique longitudinal matched employer‐employee data that permits measurement of employment transitions and wages for workers and enables links of the workers to the firms in which they are employed. We can thus measure worker flows and job flows in a comprehensive and integrated manner. We find a high pace of job flows in Slovenia especially for young, small, private and foreign‐owned firms and for young, less educated workers. While job flows have approached the rates observed in developed market economies, the excess of worker flows above job flows is lower than that observed in market economies. A key factor in the patterns of the worker and job flows is the determination of wages in Slovenia. A base wage schedule provides strict guidelines for minimum wages for different skill categories. However, firms are permitted to offer higher wages to an individual based upon the success of the worker and/or the firm. Our analysis shows that firms deviate from the base wage schedule significantly and that the idiosyncratic wage policies of firms are closely related to the observed pattern of worker and job flows at the firm. Firms with more flexible wages (measured as less compression of wages within the firm) have less employment instability and are also able to improve the match quality of their workers. JEL Classifications: J23, J31, J41, J61, P23, P31.     

Sudden stops, financial frictions, and labor market flows: Evidence from Latin America

While the aggregate effects of sudden stops and international financial crises are well known, the disaggregated channels through which they work are not well explored yet. In this paper, using job flows from a sectoral panel dataset for four Latin American countries, we find that sudden stops are characterized as periods of lower job creation and increased job destruction. Moreover, these effects are heterogeneous across sectors: we find that when a sudden stop occurs, sectors with higher dependence on external financing experience lower job creation. In turn, sectors with higher liquidity needs experience significantly larger job destruction. This evidence is consistent with the idea that dependence on external financing affects mainly the creation margin and that exposure to liquidity conditions affects mainly the destruction margin. Overall, our results provide evidence of financial frictions being an important transmission channel of sudden stops and in the restructuring process in general.     

Job creation and persistence in services and manufacturing

An important new literature on gross employment flows has produced a great outpouring of stylized facts. In this paper we examine one aspect of this literature through the lens of dynamic models and theories of industrial evolution. We extend the Davis and Haltiwanger methodology for analysis of the persistence of gross job creation, distinguishing the persistence of new jobs from business births and from expansions. The persistence rates are then compared with those expected in each sector if average annual job creation and destruction were distributed across the business population independently of the prior years changes. The results provide a basis for discussing aspects of the different dynamics of job creation in services and manufacturing.JEL Classification: J6, L6, L8, M13Correspondence to: Zoltan J. AcsThis research was conducted while the authors were research associates at the Center for Economic Studies of the U.S. Bureau of the Census, with support from the American Statistical Association/National Science Foundation/Census Bureau Research Program under grant number SBR 9808594. We would like to thank Radwan Saade for valuable research assistance, seminar participants at the International J. A. Schumpeter Society Conference in Manchester, England and two anonymous referees for helpful comments. The research results and conclusions expressed in this paper do not necessarily represent the views of the Census Bureau or of the Center for Economic Studies. The usual caveat applies.     

Fertility Decisions and Gender Differences in Labor Turnover, Employment, and Wages

A striking observation of the U.S. and other labor markets is the weak position of women in terms of job attachment, employment, and earnings relative to men. We develop a model of fertility and labor market decisions to study the impact of fertility on gender differences in labor turnover, employment, and wages. In our framework, individuals search for jobs and accumulate general (experience) and specific (tenure) human capital when they work. They can also increase their wage by moving to a job of higher quality. Labor market decisions (e.g., job acceptance and job mobility) may differ across genders: females that give birth may decide to interrupt their labor market attachment in order to enjoy the value of staying at home with their children. The model economy is successfully calibrated to match aggregate statistics in terms of fertility, employment, and wages. We find that fertility decisions generate important gender differences in turnover rates, with long lasting effects in employment and wages. These differences in labor turnover account for almost all the U.S. gender wage gap that is attributed to labor market experience by Blau and Kahn (2000, Journal of Labor Economics15(1), 1–42). The model also implies a very small role of tenure capital in accounting for wage differences between males and females (gender gap), and between females with and without children (family gap). Journal of Economic Literature Classification Numbers: E24, J13, J21, J31.     

Regional variations in US consumer response to price changes in home heating fuels: the Northeast and the South

This paper considers the paradox of a consistent net outflow of people from areas of high job creation and wages over the past 20 years and suggests the explanation that different individuals have different motivations for moving. The Labour Force Survey indicates that workers moving for job reasons have migrated to areas of low unemployment and high nominal wages. However, the inflow into such areas has been more than compensated for by an outflow of people moving for non-job reasons. A logit analysis of destination choice indicates that job movers are attracted to areas with high wages but are not affected by high house prices in such areas. In contrast, active non-job movers are deterred from areas of high house prices. Regional house price differences do not influence the destination choice of homemakers or the terminally sick but they do influence the destination choice of retirees. All groups prefer to travel the least distance when moving.     

Effect of labor market policies on unemployment when firms adapt their recruitment strategy

Firms conduct interviews to select who to hire. Their recruitment strategies affect not only the hiring rate but also job destruction rate as more interviews increase the chances of finding the right worker for the job; a link mostly overlooked in the literature. I model this recruitment behavior and investigate the effects of labor market policies on unemployment. These policies change the value of hiring the right worker, altering firms' incentives to conduct interviews. Policies further affect job creation and destruction when firms adapt their recruitment strategies. Net effect of a policy on unemployment depends on the magnitude of change in job creation versus destruction. Qualitative analysis reveals that the effect of a policy on unemployment is mostly weakened with the introduction of firms' recruitment behavior to the model. Firing taxes still increase unemployment, albeit at a lower rate. The effect of hiring subsidies on unemployment is even reversed: Unemployment increases with hiring subsidies if firms adapt. Minimum wage and unemployment insurance policies are also analyzed.     

Job creation and job types – New evidence from Danish entrepreneurs

We extend earlier analyses of the job creation of start-ups versus established firms by considering the educational content of the jobs created and destroyed. We define education-specific measures of job creation and job destruction at the firm level, and we use these measures to construct a measure of “surplus job creation”, defined as jobs created on top of any simultaneous destruction of similar jobs in incumbent firms in the same region and industry. Using Danish employer-employee data from 2002–2007 that identify the start-ups and that cover almost the entire private sector, these measures allow us to provide a more nuanced assessment of the role of entrepreneurial firms in the job-creation process than in previous studies. Our findings show that although start-ups are responsible for the entire overall net job creation, incumbents account for more than one-third of net job creation within high-skilled jobs. Moreover, start-ups “only” create approximately half of the surplus jobs and even less of the high-skilled surplus jobs. Finally, our approach allows us to characterise and identify differences across industries, educational groups and regions.     

Spatial disaggregation patterns and structural determinants of job flows: an empirical analysis

The paper investigates the changes in job creation and destruction flows at a very disaggregated level of analysis. We analyse whether job flows at lower levels of spatial aggregation display regularities that are in line with national ones in a bid to disentangle the role of labour market institutions. Using a unique database of the population of firms in Trentino (a north‐eastern province of Italy) from 1991 to 2001, we find that: (1) job flows show a ‘fractal’ tendency, i.e. many regularities appear to be scale invariant (magnitude of flow and persistence) and that job flow magnitude is in line with the average values for Italy; (2) there are some qualifications to their ‘fractality’: the contribution of entrant firms to the job creation process is lower than the corresponding contribution at national level, as is the share of job destruction accounted for by exiting firms; and (3) firm size and age influence job flows.     

Worker flows, job flows and unemployment in a matching model

Standard matching models of unemployment generate far too little volatility in unemployment and vacancies relative to the variation in the shock variables. Shimer (2005) showed that in US data the vacancy-to-unemployment ratio is about 26 times more volatile than the standard model predicts. He identified the flexibility of wages as the key issue and triggered a heated debate on possible improvements of the core model to accommodate these empirical facts. In this paper, we first document Shimer's facts for the UK and find them to be qualitatively similar to US facts. We then develop and calibrate a model based on the Mortensen and Pissarides approach that increases the volatility of the v/u ratio 20-fold compared to the standard framework. The key features of our model relate to the job creation decision by firms and the search options of workers. We allow these to search whilst employed, and firms to re-advertise jobs that have been quit from. This leads us to use a different job creation process, whereby potential vacancies, or job ‘ideas’, arise at a finite rate per period over a range of idiosyncratic productivities. Calibrating the model to UK data, we show that it delivers volatility in unemployment and vacancies much closer to, though still not as large as, that observed for the UK, whilst retaining the standard wage determination process.     

Job growth in early transition: Comparing two paths*

Small start‐up firms are the engine of job creation in early transition. We ask about differences in their growth across two different transition economies: Estonia, which experienced rapid destruction of pre‐existing firms, and the Czech Republic, which reduced the old sector gradually. We find that the majority of job growth corresponds to within‐industry reallocation. The within‐industry growth of small start‐up firms is similar in the two countries, in line with the convergence to Western industry firm‐size distributions. We also find similar patterns in the evolution of wage differentials between start‐ups and old firms and small differences in the extent of low‐wage employment in start‐ups across the two transition paths. JEL Classifications: J2, J3, J4, L1, O1, P2.     

Sensitivity of Job Destruction to Vintage and Tenure Effects

Matching models with endogenous job destruction typically deliver excessively volatile job destruction and moderate volatility of vacancies. In our model, vintage and tenure effects promote the creation of new matches that are temporarily more productive, while reducing the survival of temporarily less productive matches. This cleansing effect produces a counter‐cyclical inflow into unemployment, removes the strong response of job destruction to productivity shocks, and generates a downward‐sloping Beveridge curve, as in the data. The model also generates more volatility in vacancies, the job‐finding rate, and labor‐market tightness.     

Trade liberalization,the exchange rate and job flows in Brazil

Brazil underwent a large trade liberalization process in the 1990s. Over the period, manufacturing employment decreased significantly, generating public debate on the need to revert liberalization. This paper aims to identify the actual effect of trade liberalization on employment, separating it from exchange rate movements using a gross job flow approach. Our novel dataset covers all sectors and formally registered enterprises, and we use new sector specific exchange rate data. Our estimates suggest that greater openness reduce jobs through increased job destruction, with no effect on job creation, but the exchange rate matters also. Depreciations expand the number of jobs in manufacturing by increasing creation, with no effect on destruction.     

Employment dynamics in foreign and domestic plants: Evidence from Irish manufacturing

In this paper we investigate the driving factors behind the diverse employment performances of indigenous and foreign‐owned (multinational) plants in Ireland. Examining aggregate job creation and job destruction rates we find that the net gain of the foreign sector in Irish manufacturing employment was due to a considerably lower rate of job destruction and a slightly higher job creation rate. An econometric investigation into the determinants of net employment growth at the plant level lends further credence to the argument that foreign plants performed better than domestic plants. Even after controlling for a number of plant and sector specific effects, multinationals experienced greater net employment growth rates than their indigenous counterparts.