Firm-Level Labour Demand: Adjustment in Good Times and During the Crisis
AbstractUsing a large panel of Czech manufacturing firms with 50 or more employees, we update the firm-level labour demand elasticity estimates for 2002-2009. The economic crisis of 2008-2009 provides a source of variation needed for getting estimates that cover not only times of growth, but also a period of economic contraction. We find that in normal times (until 2007), the short-term elasticity is -0.53 with respect to wages and 0.43 with respect to sales, while the long-term elasticities are close to or below unity, standing at -0.94 for wages and 0.76 for sales. Both the wage and sales elasticities increased during the crisis, suggesting that firms became demand constrained, but only the sales elasticity is significantly different. The long-term wage elasticity close to -1 in the period before and during the crisis suggests that firms' employment decisions are made within fixed budgets. Finally, we find that the inclusion of workers hired through temporary work agencies does not significantly affect the results, indicating that firms take into account total labour when deciding on employment and that hired workers are used as an equal labour demand channel with lower adjustment costs. As a robustness check, our results are qualitatively comparable with the narrative evidence from an ad-hoc firm-level survey on wage and price formation conducted in 2007 and 2009 within the ESCB Wage Dynamics Network.
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Bibliographic InfoPaper provided by Czech National Bank, Research Department in its series Working Papers with number 2011/15.
Date of creation: Dec 2011
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Czech Republic; elasticity; firm-level data; labour demand; sales elasticity; wage elasticity; the crisis of 2008-2009.;
Other versions of this item:
- Jan Babecky & Kamil Galuscak & Lubomir Lizal, 2012. "Firm-Level Labour Demand: Adjustment in Good Times and During the Crisis," CERGE-EI Working Papers wp468, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Longitudinal Data; Spatial Time Series
- J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
- J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
- P23 - Economic Systems - - Socialist Systems and Transition Economies - - - Factor and Product Markets; Industry Studies; Population
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-01-25 (All new papers)
- NEP-BEC-2012-01-25 (Business Economics)
- NEP-HME-2012-01-25 (Heterodox Microeconomics)
- NEP-LAB-2012-01-25 (Labour Economics)
- NEP-LMA-2012-01-25 (Labor Markets - Supply, Demand, & Wages)
- NEP-TRA-2012-01-25 (Transition Economics)
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