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Catastrophic Job Destruction

Author

Listed:
  • Carneiro, Anabela

    () (University of Porto)

  • Portugal, Pedro

    () (Banco de Portugal)

  • Varejão, José

    () (University of Porto)

Abstract

In this article we study the resilience of the Portuguese labor market, in terms of job flows, employment and wage developments, in the context of the current recession. We single out the huge contribution of job destruction, especially due to the closing of existing firms, to the dramatic decline of total employment and increase of the unemployment rate. We also document the very large increase in the incidence of minimum wage earners and nominal wage freezes. We explore three different channels that may have amplified the employment response to the great recession: the credit channel, the wage rigidity channel, and the labor market segmentation channel. We uncover what we believe is convincing evidence that the severity of credit constraints played a significant role in the current job destruction process. Wage rigidity is seen to be associated with lower net job creation and higher failure rates of firms. Finally, labor market segmentation seems to have favored a stronger job destruction that was facilitated by an increasing number of temporary workers.

Suggested Citation

  • Carneiro, Anabela & Portugal, Pedro & Varejão, José, 2013. "Catastrophic Job Destruction," IZA Discussion Papers 7670, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp7670
    as

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    References listed on IDEAS

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    1. John Addison & Mário Centeno & Pedro Portugal, 2009. "Do Reservation Wages Really Decline? Some International Evidence on the Determinants of Reservation Wages," Journal of Labor Research, Springer, vol. 30(1), pages 1-8, March.
    2. Pedro Portugal & Olivier Blanchard, 2001. "What Hides Behind an Unemployment Rate: Comparing Portuguese and U.S. Labor Markets," American Economic Review, American Economic Association, vol. 91(1), pages 187-207, March.
    3. Lars Ljungqvist & Thomas J. Sargent, 1998. "The European Unemployment Dilemma," Journal of Political Economy, University of Chicago Press, vol. 106(3), pages 514-550, June.
    4. Olivier J. Blanchard & Daniel Leigh, 2013. "Growth Forecast Errors and Fiscal Multipliers," American Economic Review, American Economic Association, vol. 103(3), pages 117-120, May.
    5. Jolivet, Gregory & Postel-Vinay, Fabien & Robin, Jean-Marc, 2006. "The empirical content of the job search model: Labor mobility and wage distributions in Europe and the US," European Economic Review, Elsevier, vol. 50(4), pages 877-907, May.
    6. Olivier J. Blanchard & Lawrence H. Summers, 1986. "Hysteresis and the European Unemployment Problem," NBER Chapters,in: NBER Macroeconomics Annual 1986, Volume 1, pages 15-90 National Bureau of Economic Research, Inc.
    7. Michael W. L. Elsby & Bart Hobijn & Ayşegül Şahin, 2013. "Unemployment Dynamics in the OECD," The Review of Economics and Statistics, MIT Press, vol. 95(2), pages 530-548, May.
    8. Addison, John T. & Portugal, Pedro, 2008. "How do different entitlements to unemployment benefits affect the transitions from unemployment into employment?," Economics Letters, Elsevier, vol. 101(3), pages 206-209, December.
    9. John T. Addison & Pedro Portugal, 2007. "How Do Different Entitlements to Unemployment Benefits Affect the Transitions from Unemployment into Employment?," Working Papers w200711, Banco de Portugal, Economics and Research Department.
    10. Steven J. Davis & R. Jason Faberman & John Haltiwanger, 2006. "The Flow Approach to Labor Markets: New Data Sources and Micro-Macro Links," Journal of Economic Perspectives, American Economic Association, vol. 20(3), pages 3-26, Summer.
    11. Anabela Carneiro & Paulo Guimarães & Pedro Portugal, 2010. "On the cyclical sensitivity of real wages," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.
    12. Ana Rute Cardoso & Pedro Portugal, 2005. "Contractual Wages and the Wage Cushion under Different Bargaining Settings," Journal of Labor Economics, University of Chicago Press, vol. 23(4), pages 875-902, October.
    13. Álvaro Pina & Ildeberta Abreu, 2012. "Portugal: Rebalancing the Economy and Returning to Growth Through Job Creation and Better Capital Allocation," OECD Economics Department Working Papers 994, OECD Publishing.
    14. Anabela Carneiro & Paulo Guimarães & Pedro Portugal, 2012. "Real Wages and the Business Cycle: Accounting for Worker, Firm, and Job Title Heterogeneity," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(2), pages 133-152, April.
    15. Samuel Bentolila & Pierre Cahuc & Juan J. Dolado & Thomas Le Barbanchon, 2012. "Two‐Tier Labour Markets in the Great Recession: France Versus Spain-super-," Economic Journal, Royal Economic Society, vol. 122(562), pages 155-187, August.
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    Cited by:

    1. Whelan, Karl, 2014. "Ireland’s Economic Crisis: The Good, the Bad and the Ugly," Journal of Macroeconomics, Elsevier, vol. 39(PB), pages 424-440.
    2. Honkapohja, Seppo, 2014. "The Euro Area Crisis: A View from the North," Journal of Macroeconomics, Elsevier, vol. 39(PB), pages 260-271.
    3. Eichengreen, Barry & Jung, Naeun & Moch, Stephen & Mody, Ashoka, 2014. "The Eurozone Crisis: Phoenix Miracle or Lost Decade?," Journal of Macroeconomics, Elsevier, vol. 39(PB), pages 288-308.
    4. Carneiro, Anabela & Portugal, Pedro & Varejão, José, 2014. "Catastrophic job Destruction during the Portuguese Economic Crisis," Journal of Macroeconomics, Elsevier, vol. 39(PB), pages 444-457.
    5. Addison, John T. & Portugal, Pedro & Varejão, José, 2014. "Labor demand research: Toward a better match between better theory and better data," Labour Economics, Elsevier, vol. 30(C), pages 4-11.
    6. Reichlin, Lucrezia, 2014. "Monetary Policy and Banks in the Euro Area: The Tale of Two Crises," Journal of Macroeconomics, Elsevier, vol. 39(PB), pages 387-400.
    7. Gibson, Heather D. & Hall, Stephen G. & Tavlas, George S., 2014. "Fundamentally Wrong: Market Pricing of Sovereigns and the Greek Financial Crisis," Journal of Macroeconomics, Elsevier, vol. 39(PB), pages 405-419.
    8. Polito, Vito & Wickens, Michael, 2014. "How the Euro Crisis Evolved and how to Avoid Another: EMU, Fiscal Policy and Credit Ratings," Journal of Macroeconomics, Elsevier, vol. 39(PB), pages 364-374.
    9. Addison, John T. & Portugal, Pedro & Vilares, Hugo, 2015. "Unions and Collective Bargaining in the Wake of the Great Recession," IZA Discussion Papers 8943, Institute for the Study of Labor (IZA).
    10. HOSONO Kaoru & TAKIZAWA Miho & TSURU Kotaro, 2014. "The Impact of a Demand Shock on the Employment of Temporary Agency Workers: Evidence from Japan during the global financial crisis," Discussion papers 14046, Research Institute of Economy, Trade and Industry (RIETI).

    More about this item

    Keywords

    wage rigidity; credit constraints; job destruction; segmentation;

    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
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs

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