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Gross Job Creation and Destruction: Microeconomic Evidence and Macroeconomic Implications

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  • Steve J. Davis
  • John Haltiwanger

Abstract

This paper investigates the connection between the heterogeneity of establishment-level employment changes and aggregate fluctuations at business cycle frequencies. The empirical work exploits a rich data set with approximately 860,000 annual observations and 3.4 million quarterly observations on 160,000 manufacturing establishments to calculate rates of gross job creation, gross job destruction, and their sum, gross job reallocation. The central messages that emerge from the research in this paper are: (1) Establishment-level employment changes exhibit tremendous heterogeneity, even within narrowly defined sectors of the economy. This heterogeneity manifests itself in terms of high rates of gross job creation, destruction, and reallocation. Further, the magnitude of this heterogeneity varies significantly over time, most of the variation is due to time variation in the idiosyncratic component of establishment growth rates, and the variation is significantly countercyclical. (2) The theoretical model of employment reallocation and business cycles is suggestive of how both aggregate and allocative disturbances can drive fluctuations in job creation, job destruction, unemployment, productivity, and output. (3) The empirical analysis of the joint dynamics of job creation and job destruction supports the view that allocative disturbances were a major driving force behind movements in jobs creation, job destruction, job reallocation and net employment growth in the U.S. manufacturing sector during the 1972 to 1986 period.

Suggested Citation

  • Steve J. Davis & John Haltiwanger, 1990. "Gross Job Creation and Destruction: Microeconomic Evidence and Macroeconomic Implications," Working Papers 90-10, Center for Economic Studies, U.S. Census Bureau.
  • Handle: RePEc:cen:wpaper:90-10
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    File URL: https://www2.census.gov/ces/wp/1990/CES-WP-90-10.pdf
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    References listed on IDEAS

    as
    1. Abraham, Katharine G & Katz, Lawrence F, 1986. "Cyclical Unemployment: Sectoral Shifts or Aggregate Disturbances?," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 507-522, June.
    2. Lilien, David M, 1982. "Sectoral Shifts and Cyclical Unemployment," Journal of Political Economy, University of Chicago Press, vol. 90(4), pages 777-793, August.
    3. Dunne, Timothy & Roberts, Mark J & Samuelson, Larry, 1989. "Plant Turnover and Gross Employment Flows in the U.S. Manufacturing Sector," Journal of Labor Economics, University of Chicago Press, vol. 7(1), pages 48-71, January.
    4. Oliver Jean Blanchard & Peter Diamond, 1989. "The Beveridge Curve," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 20(1), pages 1-76.
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    Keywords

    CES; economic; research; micro; data; microdata; chief; economist;

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