Employment Dynamics

Sammanfattning: The main focus of this thesis is the employment decisions of firms. The thesis consists of three self-contained but closely related essays, all enlightening employment dynamics in different ways. The thesis is mainly empirical but there are also some theoretical developments when existing theory is insufficient to explain the empirical findings. The impact on employment of product market conditions and labor market conditions facing firms are investigated. The results suggest that product demand has a robust impact on firms’ employment dynamics, but also the market price, the wage costs, and the matching between vacancies and unemployed workers seem to matter. The empirical evidence of the relevance of imperfect competition in the product market is important, particularly since most research on labor market dynamics has assumed perfect competition. The results with respect to matching of vacancies and unemployed workers contradict the standard search and matching model as well as simple efficiency-wage or bargaining models with wage rigidity and excess supply but no frictions in the labor market. A richer model of the labor market is needed to explain the results, including on-the-job search and perhaps more heterogeneity between employed and unemployed workers.Essay I, “What are the Determinants of Hiring? - The Role of Demand and Supply Factors”, studies the importance of demand and supply factors for hiring in local labor markets. Essay II, “Vacancy Matching and Labor Market Conditions”, studies the probability of filling a vacancy, how it varies with the number of unemployed and the number of vacancies in the local labor market, and what impact it has on firms’ employment dynamics. Essay III, “The Dynamics of Firms’ Factor Demand”, studies firm-level adjustments of employment, the capital stock, and inventories in response to exogenous shocks theoretically and empirically. These three decisions have typically been studied one at the time, but here they are studied together in a way which allows for interactions and a better understanding of firm behavior.