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Firm-Level Labour Demand: Adjustment in Good Times and During the Crisis

  • Jan Babecky
  • Kamil Galuscak
  • Lubomir Lizal

Using a large panel of Czech manufacturing firms with 50 or more employees, we update the firm-level labour demand elasticity estimates for 2002-2009. The economic crisis of 2008-2009 provides a source of variation needed for getting estimates that cover not only times of growth, but also a period of economic contraction. We find that in normal times (until 2007), the short-term elasticity is -0.53 with respect to wages and 0.43 with respect to sales, while the long-term elasticities are close to or below unity, standing at -0.94 for wages and 0.76 for sales. Both the wage and sales elasticities increased during the crisis, suggesting that firms became demand constrained, but only the sales elasticity is significantly different. The long-term wage elasticity close to -1 in the period before and during the crisis suggests that firms' employment decisions are made within fixed budgets. Finally, we find that the inclusion of workers hired through temporary work agencies does not significantly affect the results, indicating that firms take into account total labour when deciding on employment and that hired workers are used as an equal labour demand channel with lower adjustment costs. As a robustness check, our results are qualitatively comparable with the narrative evidence from an ad-hoc firm-level survey on wage and price formation conducted in 2007 and 2009 within the ESCB Wage Dynamics Network.

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Paper provided by Czech National Bank, Research Department in its series Working Papers with number 2011/15.

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Date of creation: Dec 2011
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Handle: RePEc:cnb:wpaper:2011/15
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  1. Saul Estrin & Jan Hanousek & Evzen Kocenda & Jan Svejnar, 2009. "The Effects of Privatization and Ownership in Transition Economies," Journal of Economic Literature, American Economic Association, vol. 47(3), pages 699-728, September.
  2. Babecky, Jan & Caju, Philip Du & Kosma, Theodora & Lawless, Martina & Messina, Julian & Room, Tairi, 2009. "Downward nominal and real wage rigidity : survey evidence from European firms," Policy Research Working Paper Series 5159, The World Bank.
  3. Olga Bohachova & Bernhard Boockmann & Claudia M. Buch, 2011. "Labor Demand During the Crisis: What Happened in Germany?," CESifo Working Paper Series 3625, CESifo Group Munich.
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  10. Hajnalka Tarjáni, 2007. "The Role of Technology Change and Trade in Changing Relative Labor Demand in Hungary," Eastern European Economics, M.E. Sharpe, Inc., vol. 45(5), pages 35-54, September.
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  12. Swati Basu & Saul Estrin & Jan Svejnar, 1997. "Employment and wage behaviour of industrial enterprises in transition economies: The cases of Poland and Czechoslovakia," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 5(2), pages 271-287, November.
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  15. Jan Babecky & Kamil Dybczak & Kamil Galuscak, 2008. "Survey on Wage and Price Formation of Czech Firms," Working Papers 2008/12, Czech National Bank, Research Department.
  16. Kamil Galuscak & Daniel Munich, 2005. "Structural and Cyclical Unemployment: What Can We Derive from the Matching Function?," Working Papers 2005/02, Czech National Bank, Research Department.
  17. Özlem Onaran, 2008. "Jobless Growth in the Central and Eastern European Countries," Working Papers wp165, Political Economy Research Institute, University of Massachusetts at Amherst.
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