Sorting, Selection, and Industry Shakeouts
AbstractA number of plausible theories offer explanations for the propensity of many young industries to undergo a shakeout phase, during which the number of firms declines sharply in the face of continued rising output. However, none of the theories considers the role of labor market sorting. This paper presents a model in which individual abilities are complements in production, but frictions permit only gradual sorting among firms. The quality distribution of firms becomes wider over time, inducing exit of firms that have ended up with predominantly low-quality workers. The model does not ensure that a shakeout takes place, but when it does it will be characterized by rising output alongside a declining price, an increasing average wage, and a widening of the distributions across firms of employment, output, productivity and average wages.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Springer in its journal Review of Industrial Organization.
Volume (Year): 33 (2008)
Issue (Month): 1 (August)
Contact details of provider:
Web page: http://www.springerlink.com/link.asp?id=100336
Industry evolution; shakeouts; skill complementarity; L1; J62;
Other versions of this item:
- L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
- J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Paul A. Lengermann, 2002. "Is it Who You Are, Where You Work, or With Whom You Work? Reassessing the Relationship Between Skill Segregation and Wage Inequality," Longitudinal Employer-Household Dynamics Technical Papers 2002-10, Center for Economic Studies, U.S. Census Bureau.
- Zhu Wang, 2006. "Learning, diffusion and the industry life cycle," Payments System Research Working Paper PSR WP 04-01, Federal Reserve Bank of Kansas City.
- Caballero, Ricardo J & Hammour, Mohamad L, 1994.
"The Cleansing Effect of Recessions,"
American Economic Review,
American Economic Association, vol. 84(5), pages 1350-68, December.
- Caballero, R.J. & Hammour, M.L., 1991. "The Cleansing Effect of Recessions," Discussion Papers 1991_59, Columbia University, Department of Economics.
- Ricardo J. Caballero & Mohamad L. Hammour, 1991. "The Cleansing Effect of Recessions," NBER Working Papers 3922, National Bureau of Economic Research, Inc.
- Charles Brown & James L. Medoff, 2003.
"Firm Age and Wages,"
Journal of Labor Economics,
University of Chicago Press, vol. 21(3), pages 677-698, July.
- Beth Anne Wilson, 1999. "Wage rigidity: a look inside the firm," Finance and Economics Discussion Series 1999-22, Board of Governors of the Federal Reserve System (U.S.).
- Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May.
- Brixy, Udo & Kohaut, Susanne & Schnabel, Claus, 2004.
"Do newly founded firms pay lower wages? : first evidence from Germany,"
IAB Discussion Paper
200404, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
- Udo Brixy & Susanne Kohaut & Claus Schnabel, 2007. "Do Newly Founded Firms Pay Lower Wages? First Evidence from Germany," Small Business Economics, Springer, vol. 29(1), pages 161-171, June.
- Schnabel, Claus & Kohaut, Susanne & Brixy, Udo, 2004. "Do newly founded firms pay lower wages? First evidence from Germany," Discussion Papers 28, Friedrich-Alexander-University Erlangen-Nuremberg, Chair of Labour and Regional Economics.
- Paul A. Lengermann & Lars Vilhuber, 2002. "Abandoning the Sinking Ship: The Composition of Worker Flows Prior to Displacement," Longitudinal Employer-Household Dynamics Technical Papers 2002-11, Center for Economic Studies, U.S. Census Bureau.
- John M. Abowd & Francis Kramarz & David N. Margolis, 1994.
"High Wage Workers and High Wage Firms,"
NBER Working Papers
4917, National Bureau of Economic Research, Inc.
- John M. Abowd & Francis Kramarz & David N. Margolis, 1994. "High-Wage Workers and High-Wage Firms," CIRANO Working Papers 94s-23, CIRANO.
- Abowd, J.M. & Kramarz, F. & Margolis, D.N., 1995. "High-Wage Workers and High-Wage Firms," Cahiers de recherche 9503, Universite de Montreal, Departement de sciences economiques.
- Abowd, J.M. & Kramarz, F. & Margolis, D.N., 1995. "High-Wage Workers and High-Wage Firms," Cahiers de recherche 9503, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
- Bates, Timothy, 1990. "Entrepreneur Human Capital Inputs and Small Business Longevity," The Review of Economics and Statistics, MIT Press, vol. 72(4), pages 551-59, November.
- Jovanovic, Boyan & Rousseau, Peter L., 2005.
"General Purpose Technologies,"
Handbook of Economic Growth,
in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 18, pages 1181-1224
- Murphy, Kevin M & Welch, Finis, 1992. "The Structure of Wages," The Quarterly Journal of Economics, MIT Press, vol. 107(1), pages 285-326, February.
- Gort, Michael & Klepper, Steven, 1982. "Time Paths in the Diffusion of Product Innovations," Economic Journal, Royal Economic Society, vol. 92(367), pages 630-53, September.
- Robert H. Topel & Michael P. Ward, 1988.
"Job Mobility and the Careers of Young Men,"
NBER Working Papers
2649, National Bureau of Economic Research, Inc.
- Steven Klepper, 2002. "The capabilities of new firms and the evolution of the US automobile industry," Industrial and Corporate Change, Oxford University Press, vol. 11(4), pages 645-666, August.
- Boyan Jovanovic & Chung-Yi Tse, 2006. "Creative Destruction in Industries," NBER Working Papers 12520, National Bureau of Economic Research, Inc.
- Klepper, Steven, 1996. "Entry, Exit, Growth, and Innovation over the Product Life Cycle," American Economic Review, American Economic Association, vol. 86(3), pages 562-83, June.
- Steven J. Davis & John C. Haltiwanger & Scott Schuh, 1998. "Job Creation and Destruction," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262540932, January.
- Horvath, Michael & Schivardi, Fabiano & Woywode, Michael, 2001. "On industry life-cycles: delay, entry, and shakeout in beer brewing," International Journal of Industrial Organization, Elsevier, vol. 19(7), pages 1023-1052, July.
- Jovanovic, B. & MacDonald, G.M., 1992.
"The Life-Cycle of Competitive Industry,"
92-09, Rochester, Business - Financial Research and Policy Studies.
- Boyan Jovanovic & Glenn MacDonald, 1994. "The Life-Cycle of a Competitive Industry," NBER Working Papers 4441, National Bureau of Economic Research, Inc.
- Jovanovic, B. & MacDonald, G., 1993. "The Life Cycle of a Competitive Industry," Working Papers 93-34, C.V. Starr Center for Applied Economics, New York University.
- Dunne, T. & Roberts, M.J. & Samuelson, L., 1988.
"The Growth And Failure Of U.S. Manufacturing Plants,"
1-87-5, Pennsylvania State - Department of Economics.
- Dunne, Timothy & Roberts, Mark J & Samuelson, Larry, 1989. "The Growth and Failure of U.S. Manufacturing Plants," The Quarterly Journal of Economics, MIT Press, vol. 104(4), pages 671-98, November.
- Gschwandtner, Adelina & Lambson, Val E., 2002. "The effects of sunk costs on entry and exit: evidence from 36 countries," Economics Letters, Elsevier, vol. 77(1), pages 109-115, September.
- Fredrik Heyman, 2007. "Firm Size or Firm Age? The Effect on Wages Using Matched Employer-Employee Data," LABOUR, CEIS, vol. 21(2), pages 237-263, 06.
- John Haltiwanger & Marilyn E. Manser & Robert Topel, 1998. "Labor Statistics Measurement Issues," NBER Books, National Bureau of Economic Research, Inc, number halt98-1, October.
- Michael Kremer & Eric Maskin, 1996.
"Wage Inequality and Segregation by Skill,"
NBER Working Papers
5718, National Bureau of Economic Research, Inc.
- Steven Klepper & Kenneth L. Simons, 2000. "The Making of an Oligopoly: Firm Survival and Technological Change in the Evolution of the U.S. Tire Industry," Journal of Political Economy, University of Chicago Press, vol. 108(4), pages 728-760, August.
- Lu�s M B Cabral & Jos� Mata, 2003.
"On the Evolution of the Firm Size Distribution: Facts and Theory,"
American Economic Review,
American Economic Association, vol. 93(4), pages 1075-1090, September.
- Cabral, Luís M B & Mata, José, 2001. "On the Evolution of the Firm Size Distribution: Facts and Theory," CEPR Discussion Papers 3045, C.E.P.R. Discussion Papers.
- Utterback, James M. & Suarez, Fernando F., 1993. "Innovation, competition, and industry structure," Research Policy, Elsevier, vol. 22(1), pages 1-21, February.
- John M. ABOWD & Françis KRAMARZ & Antoine MOREAU, 1996.
"Product Quality and Worker Quality,"
Annales d'Economie et de Statistique,
ENSAE, issue 41-42, pages 299-322.
- Hugo A. Hopenhayn, 1993. "The shakeout," Economics Working Papers 33, Department of Economics and Business, Universitat Pompeu Fabra.
- Zucker, Lynne G & Darby, Michael R & Brewer, Marilynn B, 1998. "Intellectual Human Capital and the Birth of U.S. Biotechnology Enterprises," American Economic Review, American Economic Association, vol. 88(1), pages 290-306, March.
- Chari, V V & Hopenhayn, Hugo, 1991. "Vintage Human Capital, Growth, and the Diffusion of New Technology," Journal of Political Economy, University of Chicago Press, vol. 99(6), pages 1142-65, December.
- Colombo, Massimo G. & Delmastro, Marco & Grilli, Luca, 2004. "Entrepreneurs' human capital and the start-up size of new technology-based firms," International Journal of Industrial Organization, Elsevier, vol. 22(8-9), pages 1183-1211, November.
- Agarwal, Rajshree, 1998. "Evolutionary trends of industry variables," International Journal of Industrial Organization, Elsevier, vol. 16(4), pages 511-525, July.
- P.A. Geroski & José Mata & Pedro Portugal, 2007.
"Founding Conditions and the Survival of New Firms,"
DRUID Working Papers
07-11, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
- Dunne, T. & Roberts, M.J., 1990. "Wages And The Risk Of Plant Closing," Papers 6-90-2, Pennsylvania State - Department of Economics.
- Joseph G. Altonji & Paul J. Devereux, 1999. "The Extent and Consequences of Downward Nominal Wage Rigidity," NBER Working Papers 7236, National Bureau of Economic Research, Inc.
- Steven Klepper & Elizabeth Graddy, 1990. "The Evolution of New Industries and the Determinants of Market Structure," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 27-44, Spring.
- Zucker, Lynne G & Darby, Michael R & Armstrong, Jeff, 1998. "Geographically Localized Knowledge: Spillovers or Markets?," Economic Inquiry, Western Economic Association International, vol. 36(1), pages 65-86, January.
- Lebow David E & Saks Raven E & Wilson Beth Anne, 2003. "Downward Nominal Wage Rigidity: Evidence from the Employment Cost Index," The B.E. Journal of Macroeconomics, De Gruyter, vol. 3(1), pages 1-30, October.
- Kremer, Michael, 1993. "The O-Ring Theory of Economic Development," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 551-75, August.
- Wheeler, Christopher H, 2001. "Search, Sorting, and Urban Agglomeration," Journal of Labor Economics, University of Chicago Press, vol. 19(4), pages 879-99, October.
- Andrew Atkeson & Patrick J. Kehoe, 1993. "Industry evolution and transition: the role of information capital," Staff Report 162, Federal Reserve Bank of Minneapolis.
- JiÅÃ Podpiera & Marie RakovÃ¡, 2009.
"The Price Effects of an Emerging Retail Market,"
Eastern European Economics,
M.E. Sharpe, Inc., vol. 47(1), pages 92-105, January.
- Bester, Helmut & Milliou, Chrysovalantou & Petrakis, Emmanuel, 2012. "Wage bargaining, productivity growth and long-run industry structure," Labour Economics, Elsevier, vol. 19(6), pages 923-930.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn) or (Christopher F. Baum).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.