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Catastrophic Job Destruction

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  • Anabela Carneiro
  • Pedro Portugal
  • Jose Varejão

Abstract

In this article we study the resilience of the Portuguese labor market, in terms of job flows, employment and wage developments, in the context of the current recession. We single out the huge contribution of job destruction, especially due to the closing of existing firms, to the dramatic decline of total employment and increase of the unemployment rate. We also document the very large increase in the incidence of minimum wage earners and nominal wage freezes. We explored three different channels that may have amplified the employment response to the great recession: the credit channel, the wage rigidity channel, and the labor market segmentation channel. We uncovered what we believe is convincing evidence that the severity of credit constraints played a significant role in the current job destruction process. Wage rigidity is seen to be associated with lower net job creation and higher failure rates of firms. Finally, labor market segmentation seemed to have favored a stronger job destruction that was facilitated by an increasing number of temporary workers Dans cet article, nous analysons la résilience du marché du travail portugais, en termes de mouvements de main d’oeuvre, d'emplois et d'évolution des salaires, dans le contexte de la récession actuelle. Nous mettons en évidence la contribution significative des destructions d'emplois, notamment en raison des fermetures d’entreprises, à la baisse importante de l'emploi total et à l'augmentation du taux de chômage. Nous examinons également le très fort accroissement du nombre de travailleurs rémunérés au salaire minimum et le gel des salaires nominaux. Nous explorons trois différentes causes pouvant avoir amplifié la réaction de l'emploi à la grande recession : l’accès au crédit, la rigidité des salaires, et la segmentation du marché du travail. Nous mettons en lumière une preuve, que nous jugeons convaincante, que la rigueur des contraintes de crédit pesant sur les entreprises a joué un rôle important dans le processus actuel de destruction d’emplois. La rigidité des salaires est considérée comme allant de pair avec une création nette d'emplois plus faible et des taux plus élevés de faillite d'entreprises. Enfin, la segmentation du marché du travail semble avoir favorisé des destructions d'emplois plus fortes rendues possibles par un nombre croissant de travailleurs temporaires.

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Bibliographic Info

Paper provided by OECD Publishing in its series OECD Social, Employment and Migration Working Papers with number 152.

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Date of creation: 23 Sep 2013
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Handle: RePEc:oec:elsaab:152-en

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Keywords: wage rigidities; job destruction; segmentation; credit constraints;

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  1. John Addison & Mário Centeno & Pedro Portugal, 2009. "Do Reservation Wages Really Decline? Some International Evidence on the Determinants of Reservation Wages," Journal of Labor Research, Springer, vol. 30(1), pages 1-8, March.
  2. Michael W.L. Elsby & Bart Hobijn & Aysegul Sahin, 2011. "Unemployment Dynamics in the OECD," Tinbergen Institute Discussion Papers 11-159/3, Tinbergen Institute.
  3. Samuel Bentolila & Pierre Cahuc & Juan J. Dolado & Thomas Le Barbanchon, 2012. "Two‐Tier Labour Markets in the Great Recession: France Versus Spain-super-," Economic Journal, Royal Economic Society, vol. 122(562), pages F155-F187, 08.
  4. Addison, John T. & Portugal, Pedro, 2007. "How Do Different Entitlements to Unemployment Benefits Affect the Transitions from Unemployment into Employment?," IZA Discussion Papers 3016, Institute for the Study of Labor (IZA).
  5. Anabela Carneiro & Paulo Guimar�es & Pedro Portugal, 2012. "Real Wages and the Business Cycle: Accounting for Worker, Firm, and Job Title Heterogeneity," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(2), pages 133-52, April.
  6. Olivier J. Blanchard & Lawrence H. Summers, 1986. "Hysteresis and the European Unemployment Problem," Working papers 427, Massachusetts Institute of Technology (MIT), Department of Economics.
  7. Ljungqvist, Lars & Sargent, Thomas J., 1997. "The European Unemployment Dilemma," Working Paper Series 481, Research Institute of Industrial Economics.
  8. Álvaro Pina & Ildeberta Abreu, 2012. "Portugal: Rebalancing the Economy and Returning to Growth Through Job Creation and Better Capital Allocation," OECD Economics Department Working Papers 994, OECD Publishing.
  9. Jolivet, Gregory & Postel-Vinay, Fabien & Robin, Jean-Marc, 2006. "The empirical content of the job search model: Labor mobility and wage distributions in Europe and the US," European Economic Review, Elsevier, vol. 50(4), pages 877-907, May.
  10. Steven J. Davis & R. Jason Faberman & John Haltiwanger, 2006. "The Flow Approach to Labor Markets: New Data Sources and Micro-Macro Links," Journal of Economic Perspectives, American Economic Association, vol. 20(3), pages 3-26, Summer.
  11. Ana Rute Cardoso & Pedro Portugal, 2005. "Contractual Wages and the Wage Cushion under Different Bargaining Settings," Journal of Labor Economics, University of Chicago Press, vol. 23(4), pages 875-902, October.
  12. Pedro Portugal & Anabela Carneiro & Paulo Guimarães, 2010. "On the cyclical sensitivity of real wages," Economic Bulletin and Financial Stability Report Articles, Banco de Portugal, Economics and Research Department.
  13. Olivier J. Blanchard & Daniel Leigh, 2013. "Growth Forecast Errors and Fiscal Multipliers," IMF Working Papers 13/1, International Monetary Fund.
  14. Pedro Portugal & Olivier Blanchard, 2001. "What Hides Behind an Unemployment Rate: Comparing Portuguese and U.S. Labor Markets," American Economic Review, American Economic Association, vol. 91(1), pages 187-207, March.
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As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Catastrophic Job Destruction
    by maximorossi in NEP-LTV blog on 2013-10-15 13:40:53
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Cited by:
  1. John T. Addison & Pedro Portugal & José Varejão, . "Labour Demand Research: Towards a Better Match between Better Theory and Better Data," Working Papers bank_wp, Banco de Portugal, Economics and Research Department.

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