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Testing Theories of Job Creation: Does Supply Create Its Own Demand?

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  • Mikael Carlsson
  • Stefan Eriksson
  • Nils Gottfries

Abstract

Although search-matching theory has come to dominate labor economics in recent years, few attempts have been made to compare the empirical relevance of search-matching theory to efficiency wage and bargaining theories, where employment is determined by labor demand. In this paper we formulate an empirical equation for net job creation, which encompasses search-matching theory and a standard labor demand model. Estimation on firm-level data yields support for the labor demand model, wages and product demand affect job creation, but we find no evidence that unemployed workers contribute to job creation, as predicted by search-matching theory.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1866.

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Date of creation: 2006
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Handle: RePEc:ces:ceswps:_1866

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Keywords: job creation; involuntary unemployment; search-matching; labor demand; competitiveness;

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Cited by:
  1. Gustavsson, Magnus & Jordahl, Henrik, 2006. "Inequality and Trust: Some Inequalities are More Harmful than Others," Working Paper Series, Uppsala University, Department of Economics 2006:3, Uppsala University, Department of Economics.
  2. Mathias Trabandt & Karl Walentin & Lawrence J. Christiano, 2008. "Introducing Financial Frictions and Unemployment into a Small Open Economy Model," 2008 Meeting Papers 423, Society for Economic Dynamics.
  3. Pascal Michaillat, 2012. "Do Matching Frictions Explain Unemployment? Not in Bad Times," American Economic Review, American Economic Association, American Economic Association, vol. 102(4), pages 1721-50, June.
  4. Gustavsson, Magnus & Jordahl, Henrik, 2008. "Inequality and trust in Sweden: Some inequalities are more harmful than others," Journal of Public Economics, Elsevier, Elsevier, vol. 92(1-2), pages 348-365, February.
  5. Ekkehard Ernst & Uma Rani, 2011. "Understanding unemployment flows," Oxford Review of Economic Policy, Oxford University Press, Oxford University Press, vol. 27(2), pages 268-294.
  6. Olivier Pierrard, 2007. "Commuters, residents and job competition in Luxembourg," BCL working papers, Central Bank of Luxembourg 26, Central Bank of Luxembourg.

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