Between-Firm Redistribution of Profit in Competitive Industries: Why Labor Market Policies May Not Work
Empirical studies document differences in firms' response to the introduction of various labor market policies. In particular, large and mature firms tend to participate more actively in targeted employment subsidy programs (under which firms receive subsidies for hiring disadvantaged workers). This paper offers an explanation for this phenomenon and argues that it might have important consequences for policy making. Namely, such behavior of firms may indicate that large and mature firms benefit from the introduction of a new subsidy program, while small and young firms incur indirect costs. In this case, the policy implicitly redistributes profit from young to mature firms and may discourage startups if the entry into the industry is competitive. The resulting decrease in the number of operating firms is likely to have a significant impact on the policy's outcomes. These effects become more pronounced as heterogeneity between young and mature firms increases
|Date of creation:||03 Dec 2006|
|Date of revision:|
|Contact details of provider:|| Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA|
Web page: http://www.EconomicDynamics.org/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Fernando Alvarez & Marcelo Veracierto, 1999.
"Labor market policies in an equilibrium search model,"
Working Paper Series
WP-99-10, Federal Reserve Bank of Chicago.
- Fernando Alvarez & Marcelo Veracierto, 2000. "Labor-Market Policies in an Equilibrium Search Model," NBER Chapters, in: NBER Macroeconomics Annual 1999, Volume 14, pages 265-316 National Bureau of Economic Research, Inc.
- Steve J. Davis & John Haltiwanger, 1991.
"Gross Job Creation, Gross Job Destruction and Employment Reallocation,"
NBER Working Papers
3728, National Bureau of Economic Research, Inc.
- Steven J. Davis & John Haltiwanger, 1992. "Gross Job Creation, Gross Job Destruction, and Employment Reallocation," The Quarterly Journal of Economics, Oxford University Press, vol. 107(3), pages 819-863.
- Steve J. Davis & John Haltiwanger, 1991. "Gross job creation, gross job destruction and employment reallocation," Working Paper Series, Macroeconomic Issues 91-5, Federal Reserve Bank of Chicago.
- Nicholas Kaldor, 1936. "Wage Subsidies as a Remedy for Unemployment," Journal of Political Economy, University of Chicago Press, vol. 44, pages 721.
- Carling, Kenneth & Richardson, Katarina, 2001. "The relative efficiency of labor market programs: Swedish experience from the 1990's," Working Paper Series 2001:2, IFAU - Institute for Evaluation of Labour Market and Education Policy.
- Hui, Weng T. & Trivedi, P. K., 1986. "Duration dependence, targeted employment subsidies and unemployment benefits," Journal of Public Economics, Elsevier, vol. 31(1), pages 105-129, October.
- Hopenhayn, Hugo & Rogerson, Richard, 1993. "Job Turnover and Policy Evaluation: A General Equilibrium Analysis," Journal of Political Economy, University of Chicago Press, vol. 101(5), pages 915-38, October.
- Raj Chetty, 2006.
"A New Method of Estimating Risk Aversion,"
American Economic Review,
American Economic Association, vol. 96(5), pages 1821-1834, December.
- Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-50, September.
- Phelps, Edmund S, 1994. "Low-Wage Employment Subsidies versus the Welfare State," American Economic Review, American Economic Association, vol. 84(2), pages 54-58, May.
- J Richardson, 1997. "Can Active Labour Market Policy Work? Some Theoretical Considerations," CEP Discussion Papers dp0331, Centre for Economic Performance, LSE.
- Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
When requesting a correction, please mention this item's handle: RePEc:red:sed006:779. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann)
If references are entirely missing, you can add them using this form.