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Product market imperfections and employment dynamics

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  • Mikael Carlsson
  • Stefan Eriksson
  • Nils Gottfries

Abstract

How important is imperfect competition in the product market for employment dynamics? To investigate this, we formulate a model of employment adjustment with search frictions, vacancy costs, hiring costs, and imperfect competition in the product market. From this model, we derive a structural equation for employment that we estimate on firm-level data. We find that product market demand shocks have significant and quantitatively large effects on employment. This supports a model with imperfect competition in the product market. We find no evidence that the level of unemployment in the local labour market has a direct effect on job creation in existing firms. In some specifications, we find evidence of congestion effects, i.e., that hiring is slowed down if there are many vacancies in the local labour market. Copyright 2013 Oxford University Press 2012 All rights reserved, Oxford University Press.

Suggested Citation

  • Mikael Carlsson & Stefan Eriksson & Nils Gottfries, 2013. "Product market imperfections and employment dynamics," Oxford Economic Papers, Oxford University Press, vol. 65(2), pages 447-470, April.
    • Handle: RePEc:oup:oxecpp:v:65:y:2013:i:2:p:447-470
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    References listed on IDEAS

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    Cited by:

    1. Lawrence J. Christiano & Martin S. Eichenbaum & Mathias Trabandt, 2016. "Unemployment and Business Cycles," Econometrica, Econometric Society, vol. 84(4), pages 1523-1569, July.
    2. Sanjay K. Chugh & Christian Merkl, 2016. "Efficiency And Labor Market Dynamics In A Model Of Labor Selection," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 57(4), pages 1371-1404, November.
    3. Jens Horbach & Markus Janser, 2016. "The role of innovation and agglomeration for employment growth in the environmental sector," Industry and Innovation, Taylor & Francis Journals, vol. 23(6), pages 488-511, August.
    4. Gottfries, Nils & Stadin, Karolina, 2016. "The Matching Process: Search or Mismatch," Ratio Working Papers 279, The Ratio Institute.
    5. Gottfries, Nils & Mickelsson, Glenn & Stadin, Karolina, 2018. "Deep Dynamics," Working Paper Series 2018:10, Uppsala University, Department of Economics.
    6. Eriksson, Stefan & Stadin, Karolina, 2015. "What are the determinants of hiring? The role of demand and supply factors," Working Paper Series 2015:14, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    7. Eriksson, Stefan & Stadin, Karolina, 2011. "The Determinants of Hiring in Local Labor Markets: The Role of Demand and Supply Factors," Working Paper Series 2011:19, Uppsala University, Department of Economics.
    8. Niels-Jakob Harbo Hansen & Hans Henrik Sievertsen, 2021. "Measuring Vacancies: Firm-level Evidence from Two Measures," Papers 2103.02272, arXiv.org.
    9. Stadin, Karolina, 2015. "Firms’ employment dynamics and the state of the labor market," Working Paper Series 2015:20, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    10. Stadin, Karolina, 2012. "Vacancy Matching and Labor Market Conditions," Working Paper Series 2012:16, Uppsala University, Department of Economics.
    11. Nils Gottfries & Glenn Mickelsson & Karolina Stadin, 2021. "Deep Dynamics," CESifo Working Paper Series 8873, CESifo.

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