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Negative Shocks, Job Creation, and Selection. WWWforEurope Working Paper No. 11

Author

Listed:
  • Catia Montagna
  • Hassan Molana
  • Daniel Kopasker

    (University of Dundee)

  • Holger Görg

    (Kiel Institute for the World Economy)

Abstract

High inter-country variability characterises the responsiveness of both output to (exogenous) shocks and employment to output contractions. We argue that inter-country 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.

Suggested Citation

  • Catia Montagna & Hassan Molana & Daniel Kopasker & Holger Görg, 2013. "Negative Shocks, Job Creation, and Selection. WWWforEurope Working Paper No. 11," WIFO Studies, WIFO, number 46858, August.
    • Handle: RePEc:wfo:wstudy:46858
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    References listed on IDEAS

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    6. Luis Garicano & Claire Lelarge & John Van Reenen, 2016. "Firm Size Distortions and the Productivity Distribution: Evidence from France," American Economic Review, American Economic Association, vol. 106(11), pages 3439-3479, November.
    7. Jun Nie & Ethan Struby, 2011. "Would active labor market policies help combat high U.S. unemployment?," Economic Review, Federal Reserve Bank of Kansas City, vol. 96(Q III), pages 35-69.
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    Cited by:

    1. Yu-Fu Chen & Hassan Molana & Catia Montagna & Holger Görg & Dennis Görlich & Yama Temouri, 2014. "Globalisation and the Future of the Welfare State. WWWforEurope Working Paper No. 54," WIFO Studies, WIFO, number 47156, June.

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