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In Search of Labor Demand

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Listed:
  • Paul Beaudry
  • David A. Green
  • Ben M. Sand

Abstract

We propose and estimate a novel specification of labor demand which encompasses search frictions and the role of entrepreneurs in new firm creation. Using city-industry variation over four decades, we estimate the wage elasticity of employment demand to be close to -1 at the industry-city level and -0.3 at the city level. We argue that the difference between these estimates reflects the congestion externalities predicted by the search literature. Our estimates also indicate that entrepreneurship should be treated as a scarce factor in the determination of labor demand. We use our estimates to evaluate the impact of large changes in the minimum wage on employment.

Suggested Citation

  • Paul Beaudry & David A. Green & Ben M. Sand, 2018. "In Search of Labor Demand," American Economic Review, American Economic Association, vol. 108(9), pages 2714-2757, September.
    • Handle: RePEc:aea:aecrev:v:108:y:2018:i:9:p:2714-57
    Note: DOI: 10.1257/aer.20141374
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    More about this item

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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