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Testing Theories of Job Creation: Does Supply Create Its Own Demand?

  • Carlsson, Mikael


    (Research Department, Central Bank of Sweden)

  • Eriksson, Stefan


    (Department of Economics, Uppsala University)

  • Gottfries, Nils


    (Department of Economics, Uppsala University)

How well do alternative labor market theories explain variations in net job creation? According to search-matching theory, job creation in a firm should depend on the availability of workers (unemployment) and on the number of job openings in other firms (congestion). According to efficiency wage and bargaining theory, wages are set above the market clearing level and employment is determined by labor demand. To compare these models we estimate an encompassing equation for net job creation on firm-level data. The results support demand-oriented theories of job creation, whereas we find no evidence in favor of the search-matching theory.

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Paper provided by Sveriges Riksbank (Central Bank of Sweden) in its series Working Paper Series with number 194.

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Length: 29 pages
Date of creation: 01 May 2006
Date of revision:
Handle: RePEc:hhs:rbnkwp:0194
Contact details of provider: Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Phone: 08 - 787 00 00
Fax: 08-21 05 31
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