Skill shortages and firms' employment behaviour |
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Institution: | 1. School of Engineering, University of Warwick, Coventry, United Kingdom;2. Fraunhofer-Chalmers Centre, Chalmers Science Park, Göteborg, Sweden;3. Mathematical Institute, Leiden University, Leiden, The Netherlands;4. Division of Pharmacology and Toxicology, Department of Biomedical Sciences and Veterinary Public Health, Swedish University of Agriculture Sciences, Uppsala, Sweden |
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Abstract: | This study investigates the effects of skill shortages on the dynamics of employment at the firm level for UK manufacturing between 1984–94. We find that shortages of skilled labour have a statistically significant effect on firms' employment behaviour. It has a positive effect on firms' adjustment costs leading to employment being more sluggish to respond when the labour market is tight, implying that employment adjustment will be more responsive in the downward direction. This result is robust to the inclusion of a measure of firms' sales expectations, with the effect of skill shortages being greater in periods when firms expect sales to rise. |
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