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Negative Shocks, Job Creation, and Selection

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  • Daniel Kopasker
  • Holger Görg
  • Hassan Molana
  • Catia Montagna

Abstract

High inter-country variability characterises the responsiveness of both output to (exogenous) shocks and employment to output contractions. We argue that intercountry differences in firm-size distributions contribute to explaining this variability. Within an open economy model, we show that competitive selection processes are an important channel through which a shock affects aggregate employment. Intra-industry selection is then shown to influence the effectiveness of active labour market policies in countering the employment and welfare effects of a negative shock. We estimate a measure of the shape parameter of firm size distribution and study its effect on the employment-output relationship for a number of OECD countries. Our results confirm the key predictions of the theory.

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Bibliographic Info

Paper provided by WWWforEurope in its series WWWforEurope Working Papers series with number 11.

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Length: 35
Date of creation: Jul 2013
Date of revision:
Publication status: published
Handle: RePEc:feu:wfewop:y:2013:m:7:d:0:i:11

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Postal: WWWforEurope Project Office Austrian Institute of Economic Research Arsenal Objekt 20 A-1030 Vienna
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Keywords: Job creation; employment subsidies; competitive selection; international trade;

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  1. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  2. Bartelsman, Eric & Haltiwanger, John C. & Scarpetta, Stefano, 2009. "Cross-Country Differences in Productivity: The Role of Allocation and Selection," IZA Discussion Papers 4578, Institute for the Study of Labor (IZA).
  3. Felbermayr, Gabriel & Prat, Julien & Schmerer, Hans-Jörg, 2011. "Globalization and labor market outcomes: Wage bargaining, search frictions, and firm heterogeneity," Munich Reprints in Economics, University of Munich, Department of Economics 20471, University of Munich, Department of Economics.
  4. Giovanni S. F. Bruno, 2005. "Estimation and inference in dynamic unbalanced panel-data models with a small number of individuals," Stata Journal, StataCorp LP, StataCorp LP, vol. 5(4), pages 473-500, December.
  5. Giuseppe Moscarini & Fabien Postel-Vinay, 2012. "The Contribution of Large and Small Employers to Job Creation in Times of High and Low Unemployment," American Economic Review, American Economic Association, American Economic Association, vol. 102(6), pages 2509-39, October.
  6. Michael W. L. Elsby & Ryan Michaels, 2013. "Marginal Jobs, Heterogeneous Firms, and Unemployment Flows," American Economic Journal: Macroeconomics, American Economic Association, vol. 5(1), pages 1-48, January.
  7. Kluve, Jochen, 2010. "The effectiveness of European active labor market programs," Labour Economics, Elsevier, Elsevier, vol. 17(6), pages 904-918, December.
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Citations

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Cited by:
  1. Karl Aiginger & Kurt Kratena & Margit Schratzenstaller & Teresa Weiss, 2014. "Moving towards a new growth model," WWWforEurope Deliverables series 3, WWWforEurope.
  2. Zareh Asatryan & Sebastian Braun & Wolfgang Lechthaler & Mariya Mileva & Catia Montagna, 2014. "Compensating the losers of free trade," WWWforEurope Working Papers series, WWWforEurope 63, WWWforEurope.
  3. Chen, Yu-Fu & Görg, Holger & Görlich, Dennis & Molana, Hassan & Montagna, Catia & Temouri, Yama, 2014. "Globalisation and the Future of the Welfare State," IZA Policy Papers, Institute for the Study of Labor (IZA) 81, Institute for the Study of Labor (IZA).

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