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Title: In Search of Labor Demand

Citation Type: Miscellaneous

Publication Year: 2014

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Abstract: How do changes in the wage costs born by firms affect the employment prospects of individuals over the medium-run? While this question is central to many policy issues, there remains considerable debate regarding the answer. To shed light on the issue, we propose and estimate a novel specification of the labor demand curve that recognizes the role of entrepreneurs in the creation of new firms and allows for search frictions that introduce a feedback between a firms demand and the demand in a whole market. Using city-industry level variation over four decades, we estimate the elasticity of employment with respect to wages to be -1 at the industry-city level and -0.3 at the city level. We show that the difference between these two estimates likely reflects the congestion externalities predicted by the search and matching literature. In addition, we find that holding wages constant, an increase in the local population is associated with a proportional increase in employment. We discuss how these combined results indirectly inform us about the elasticity of job creation to changes in profits.

Url: http://dept.econ.yorku.ca/~bmsand/ldvnewtrial6c.pdf

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Authors: Beaudry, Paul; Green, David A.; Sand, Ben

Publisher: University of British Columbia

Data Collections: IPUMS USA

Topics: Labor Force and Occupational Structure

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