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Product market imperfections and employment dynamics

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  • Mikael Carlsson
  • Stefan Eriksson
  • Nils Gottfries

Abstract

How important is imperfect competition in the product market for employment dynamics? To investigate this, we formulate a model of employment adjustment with search frictions, vacancy costs, hiring costs, and imperfect competition in the product market. From this model, we derive a structural equation for employment that we estimate on firm-level data. We find that product market demand shocks have significant and quantitatively large effects on employment. This supports a model with imperfect competition in the product market. We find no evidence that the level of unemployment in the local labour market has a direct effect on job creation in existing firms. In some specifications, we find evidence of congestion effects, i.e., that hiring is slowed down if there are many vacancies in the local labour market. Copyright 2013 Oxford University Press 2012 All rights reserved, Oxford University Press.

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Bibliographic Info

Article provided by Oxford University Press in its journal Oxford Economic Papers.

Volume (Year): 65 (2013)
Issue (Month): 2 (April)
Pages: 447-470

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Handle: RePEc:oup:oxecpp:v:65:y:2013:i:2:p:447-470

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  1. Kleibergen, Frank & Paap, Richard, 2006. "Generalized reduced rank tests using the singular value decomposition," Journal of Econometrics, Elsevier, Elsevier, vol. 133(1), pages 97-126, July.
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  7. Gottfries, Nils, 1999. "Markets Shares, Financial Constraints, and Pricing Behavior in the Export Market," Working Paper Series, Uppsala University, Department of Economics 1999:15, Uppsala University, Department of Economics.
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  16. Magnus Lundin & Nils Gottfries & Charlotte Bucht & Tomas Lindström, 2009. "Price and Investment Dynamics: Theory and Plant-Level Data," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 41(5), pages 907-934, 08.
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Cited by:
  1. Stadin, Karolina, 2012. "Vacancy Matching and Labor Market Conditions," Working Paper Series, Uppsala University, Department of Economics 2012:16, Uppsala University, Department of Economics.
  2. Christian Merkl & Sanjay K. Chugh, 2011. "Efficiency and Labor Market Dynamics in a Model of Labor Selection," 2011 Meeting Papers, Society for Economic Dynamics 824, Society for Economic Dynamics.
  3. Eriksson, Stefan & Stadin, Karolina, 2011. "The Determinants of Hiring in Local Labor Markets: The Role of Demand and Supply Factors," Working Paper Series, Uppsala University, Department of Economics 2011:19, Uppsala University, Department of Economics.
  4. Lawrence J. Christiano & Martin S. Eichenbaum & Mathias Trabandt, 2013. "Unemployment and business cycles," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 1089, Board of Governors of the Federal Reserve System (U.S.).
  5. Emmanuel Saez & Pascal Michaillat, 2013. "A Theory of Aggregate Supply and Aggregate Demand as Functions of Market Tightness with Prices as Parameters," 2013 Meeting Papers, Society for Economic Dynamics 1216, Society for Economic Dynamics.

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