Scandinavian Working Papers in Economics

Working Paper Series,
IFAU - Institute for Evaluation of Labour Market and Education Policy

No 2014:28: Firm-level shocks and labor adjustments

Mikael Carlsson (), Julián Messina () and Oskar Nordström Skans ()
Additional contact information
Mikael Carlsson: Department of Economics, Uppsala University, Postal: P O Box 513, SE-751 20 Uppsala, Sweden
Julián Messina: World Bank
Oskar Nordström Skans: Departement of Economics, Uppsala University, Postal: P O Box 513, SE-751 20 Uppsala, Sweden

Abstract: We analyze how firms adjust their labor in response to idiosyncratic shifts in their production function and demand curves using a unique data-set of Swedish manufacturing firms. We show that permanent shocks to firm-level demand is a main driving force behind both job and worker reallocation. In contrast, shocks to physical productivity and temporary demand shocks have a very limited impact on firm-level employment despite being important determinants of other firm-level fundamentals. We also present evidence suggesting that the adjustment to permanent demand shocks is fairly unconstrained. Most notably, firms primarly downsize through increased separations of both short- and long-tenured workers even when they could have adjusted their employment through reduced hires.

Keywords: Technology; demand; job creation; rigidities; worker flows

JEL-codes: C33; J23; J63; O33

59 pages, December 9, 2014

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wp2014-28-Firm-level-shocks-and-labor-adjustments.pdf PDF-file 

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