Hiring subsidies, job creation and job destruction

We quantify the effects of hiring subsidies using the model of Mortensen and Pissarides (2003). The job creation effect can be large in a weak labor market. However, in the long-run, subsidies raise the wage and equilibrium unemployment.     

On temporary layoffs and job search theory

This note explores some properties of job search models in which layoff status to a particular job may be considered as a job offer which is conditional on having been employed at that job.     

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.     

Financial distress,bank debt restructurings,and layoffs

We develop a model of a financially distressed firm to analyze the implications of a bank debt restructuring when the operational characteristics of the firm's project for the post-distress period are endogenously determined as part of the workout. We establish a formal link between the debt restructuring and operational actions such as employee layoffs, and show how these actions are affected by the firm's capital structure, the ordering of absolute priorities, and the allocation of control rights and residual claims after reorganization. Finally, we discuss the implications of our analysis for the design of reorganization law.     

Job creation,job destruction,labour mobility and wages in Poland, 1988–19981

Longitudinal data from interviews with Poles of working age conducted in 1988, 1993 and 1998 combined with longitudinal firm‐level data present a detailed view of the transition from a state‐dominated to a market economy. Job losses in state firms and job creation in new private firms are the dominant employment changes, other than retirements from the labour force. In the Polish case, a significant proportion of this movement over the 1988–1998 period involves a spell of unemployment or exit from the labour force before obtaining a private sector job. This results in considerable job competition between workers leaving the state sector and those who are out of the labour force or unemployed. Income differences between the state sector and the de novo sector appear to have little association with mobility. These results suggest that movement to the new private sector is more likely to be the result of job loss than the result of people looking for better, higher paying jobs. Self‐employment plays an important role in the development of the private sector. People working on their own account have higher incomes than wageworkers and are likely to become owners employing additional workers. Incomes are higher in regions with high rates of job creation and depressed in regions with job destruction.     

Job creation and job destruction in the presence of informal markets

In developing economies, the fraction of informal workers can be as high as 70% of total employment. For economies with significant informal sectors, business cycle fluctuations and labor market policy interventions can have important effects not only on the unemployment rate, but also on the allocation of workers across regulated and unregulated jobs. In this paper, using worker flows data from Brazil, we build, calibrate, and simulate a two-sector search and matching labor market model, in which firms have the choice of hiring workers formally or informally. We show that our model can explain well the main cyclical patterns that lead to those cyclical reallocations. We also show how the effect of government interventions in the labor market depend on the magnitude of the reallocation of labor across regulated and unregulated sectors. For our calibration, policies that decrease the cost of formal jobs, or increase the cost of informality, raise the share of formal employment while reducing unemployment.     

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.     

Dynamic labor contracts with temporary layoffs and permanent separations

Summary. We study the implications of optimal dynamic contracts in private information environments for fluctuations in effort and employment across time and productivity states. To this end, we incorporate temporary layoffs and permanent separations as well as on-the-job effort variations into a dynamic model of moral hazard. We consider two different “commitment” environments. In a “full commitment” environment, although the firm can temporarily lay a worker off, neither party can dissolve the contractual relationship once it has been initiated. On the other hand, in a “limited commitment” environment, both parties can dissolve the relationship at the beginning of any period in order to pursue an outside option. We use our model to study the implications of optimal contracts for incentives, employment histories, layoffs and separations across full information, full commitment and limited commitment settings. We compute solutions to the relevant principal-agent problems, endogenously determining the set of states in which separations occur and the domain of the firm's value function, as well as the value function itself. Received: February 28, 2000; revised version: January 21, 2001     

Firm heterogeneity and trade-induced layoffs: An empirical investigation

We use a novel data set with verified observations of trade-induced layoffs by U.S. firms to study the interaction between firm productivity and trade liberalization as key determinants of firm-level job destruction due to trade. We find that patterns of trade-induced layoffs are broadly consistent with the predictions for firm-level employment generated by the Melitz (2003) heterogeneous firms theory – the number of trade-induced layoffs increases with firm productivity for non-exporting firms but decreases with firm productivity for exporting firms. The fact that exporting firms incur trade-induced layoffs at all invites a refined interpretation of the theory. Our findings suggest that exporting firms may lay off some workers who work in production for their shrinking domestic segments, while also engaging in some within-firm reallocation of workers. We also find that, even after controlling for productivity and export status, larger firms lay off more workers due to trade competition.     

Plant-level employment development before collective displacements: comparing mass layoffs,plant closures and bankruptcies

This article analyzes the development of employment levels and worker flows before bankruptcies, plant closure without bankruptcies and mass layoffs. Utilizing administrative plant-level data for Germany, we find no systematic employment reductions prior to mass layoffs, a strong and long-lasting reduction prior to closures, and a much shorter shadow of death preceding bankruptcies. Employment reductions in closing plants, in contrast to bankruptcies and mass layoffs, do not come along with increased worker flows. These patterns point to an intended and controlled shrinking strategy for closures without bankruptcy and to an unintended collapse for bankruptcies and mass layoffs.     

Globalization,recruitments, and job mobility

Previous research indicates that firms pay a premium to poach workers from exporting firms if experience working for an internationally engaged firm reduces trade costs. Because international experience is less valuable to non-exporters, we would expect to see differences in recruitments between firms that are internationally engaged and those that serve only the domestic market. Moreover, increased openness might lead to higher job-to-job mobility if more globalization raises both the share of exporters and the number of workers with skills that make them attractive for other exporters. Using linked Swedish employer–employee data for the period 1997 to 2013, we find systematic differences between the way exporters and non-exporters recruit workers: exporters have a relatively high share of recruitments from other exporters as hypothesized. We also find some suggestive evidence that increased openness correlates positively with upward mobility for occupations that play a major role in international commerce, such as professionals and managers.     

Information flow,job search,and migration

"In this paper, an individual model of rural-urban migration is studied, emphasizing the effects of information flow and urban wage dispersion. Migration is viewed in the context of a lifetime program of job search. It is shown that migration can occur even when the mean urban wage is no larger than the rural income flow.... Both the shape and spread of the urban wage dispersion are shown to affect migration behavior significantly." The geographical focus is on developing countries.     

Multinational firms,acquisitions and job tasks

We revisit the question how inward FDI and multinational ownership affect relative labor demand. Motivated by the recent literature that distinguish between skills and tasks, we argue that the impact of multinational and foreign ownership on the demand for labor is better captured by focusing on job tasks rather than education. We use Swedish matched employer–employee data and find that changes of local firms to both foreign and Swedish multinationals increase the relative demand for non-routine and interactive job tasks in the targeted local firms. Hence, in a high-income country, both inward and outward FDI have a task upgrading impact on local firms. The effect is primarily driven by wage effects leading to increased wage dispersion for workers with different non-routine and interactive task intensity. We also show that the effect is not the same as skill upgrading since dividing employees by educational attainment does not capture changes in the relative labor demand. Hence, our results suggest a new aspect of the labor market consequences of FDI.     

Temporary employment,work quality,and job satisfaction

Using European Working Conditions Survey, this paper shows that being employed on a temporary, rather than an open-ended, contract has a negative bearing for job satisfaction. While this effect has been established previously, the novelty of this paper is to show that the effect propagates both directly and indirectly, through working conditions and work quality. Accounting for this indirect effect allows to obtain the effect of the contractual status on job satisfaction that is substantially larger in magnitude as compared to simple direct effects, confirming the importance of accounting for unobservable individual, company-specific, and job-specific heterogeneity when addressing this relationship. Moreover, the extent of co-determination of poorer working conditions and temporary contractual status, as well as the resulting bias in estimating only a direct effect of temporary employment on job satisfaction without accounting for such co-determination, vary depending on a country setting. It is shown that in transition economies, this co-determination is larger than in non-transition economies, possibly because of the workers’ weaker bargaining power, strategic use of temporary employment to circumvent labor regulations, the absence of regulations prescribing equal treatment of workers with different contractual arrangements, or lack of compliance with such regulations.     

International trade,job training,and labor reallocation

A large literature studies the impact of increased import competition on workers' outcomes, however, relatively few studies examine which policies can aid workers displaced by trade. In this article, we evaluate the impact of an industrial job training program in Brazil on workers displaced from manufacturing sectors. We find that industrial training increases the probability of re-entry into the formal labor market 1 year after displacement by about 17 percentage points and is even more effective for workers displaced from sectors exposed to high import competition. This effect is mainly associated with workers switching sectors and occupations after training.     

Qualifications,job mismatch,and workers with disabilities

Portuguese Economic Journal - Using panel estimation on longitudinal data from the Panel Survey of Employment for the Disabled (PSED), this study examines the relationship between wages and job...     

Job creators,job creation,and the tax code

This paper considers the role of the tax code in determining income dispersion and vacancy creation. A “span‐of‐control” model is embedded into a search and matching environment. A cut to the tax on profits in isolation improves job creation and reduces before‐tax income inequality. The impact of a budget‐balancing increase in the wage tax depends on the bargaining power of firms. When it is high, firms pick up the lion's share of the tax burden. The tax acts like a barrier to entry: it benefits large firms at the expense of marginal ones. Net effects are an increase in unemployment and before‐tax income dispersion. Low firm bargaining power means workers pick up more of the tax burden. It acts like a subsidy to entrepreneurship reinforcing the impact of the profit tax reduction. Taxes on the returns to capital leave everyone worse off.     

Tax effects on job search,training, and work effort

The conventional economic model of labour supply is extended to include job-search activity or off-the-job training. For most tax and transfer policies, the slope of the labour-supply schedule affects the direction of search incentives relative to laissez faire. Only the income subsidy exerts unambiguously negative effects on search activity. A proportional income tax offers greater search incentives than an equal-revenue progressive income tax. The positive marginal subsidy range of an earnings subsidy evokes more search than an equal-transfer wage or income subsidy, but ranking of the latter two programs is ambiguous. Work and search effects are combined in an analysis of the impact of each policy on workers' gross market earnings.