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

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  • Carlsson, Mikael

    (Research Department)

  • Eriksson, Stefan

    (Department of Economics)

  • Gottfries, Nils

    (Department of Economics)

Abstract

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 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.

Suggested Citation

  • Carlsson, Mikael & Eriksson, Stefan & Gottfries, Nils, 2006. "Testing Theories of Job Creation: Does Supply Create Its Own Demand?," Working Paper Series 2006:7, Uppsala University, Department of Economics, revised 23 Oct 2008.
  • Handle: RePEc:hhs:uunewp:2006_007
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    Cited by:

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    2. Pascal Michaillat, 2012. "Do Matching Frictions Explain Unemployment? Not in Bad Times," American Economic Review, American Economic Association, vol. 102(4), pages 1721-1750, June.
    3. Ekkehard Ernst & Uma Rani, 2011. "Understanding unemployment flows," Oxford Review of Economic Policy, Oxford University Press, vol. 27(2), pages 268-294.
    4. Christiano, Lawrence J. & Trabandt, Mathias & Walentin, Karl, 2011. "Introducing financial frictions and unemployment into a small open economy model," Journal of Economic Dynamics and Control, Elsevier, vol. 35(12), pages 1999-2041.
    5. Gustavsson, Magnus & Jordahl, Henrik, 2006. "Inequality and Trust: Some Inequalities are More Harmful than Others," Working Paper Series 2006:3, Uppsala University, Department of Economics.
    6. Olivier Pierrard, 2007. "Commuters, residents and job competition in Luxembourg," BCL working papers 26, Central Bank of Luxembourg.
    7. Ruqun Wu & Dan Yang & Jiquan Chen, 2014. "Social Life Cycle Assessment Revisited," Sustainability, MDPI, Open Access Journal, vol. 6(7), pages 1-27, July.

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    More about this item

    Keywords

    Job Creation; Involuntary Unemployment; Search-Matching; Labor Demand;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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