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

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  • Carlsson, Mikael

    ()
    (Sveriges Riksbank)

  • Eriksson, Stefan

    ()
    (Uppsala University)

  • Gottfries, Nils

    ()
    (Uppsala University)

Abstract

How well do alternative labor market theories explain variations in net job creation? According to search-matching theory, job creation in a firm should depend on the availability of workers (unemployment) and on the number of job openings in other firms (congestion). According to efficiency wage and bargaining theory, wages are set above the market clearing level and employment is determined by labor demand. To compare models, we estimate an encompassing equation for net job creation on firm-level data. The results support demand-oriented theories of job creation, whereas we find no evidence in favor of the search-matching theory.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2024.

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Length: 26 pages
Date of creation: Mar 2006
Date of revision:
Handle: RePEc:iza:izadps:dp2024

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

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Cited by:
  1. 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.
  2. Gustavsson, Magnus & Jordahl, Henrik, 2006. "Inequality and Trust in Sweden: Some Inequalities are More Harmful than Others," Ratio Working Papers, The Ratio Institute 106, The Ratio Institute.
  3. Olivier Pierrard, 2007. "Commuters, residents and job competition in Luxembourg," BCL working papers, Central Bank of Luxembourg 26, Central Bank of Luxembourg.
  4. Christiano, Lawrence J. & Trabandt, Mathias & Walentin, Karl, 2007. "Introducing Financial Frictions and Unemployment into a Small Open Economy Model," Working Paper Series, Sveriges Riksbank (Central Bank of Sweden) 214, Sveriges Riksbank (Central Bank of Sweden), revised 01 Jun 2011.
  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. 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.

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