Scandinavian Working Papers in Economics

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

No 2015:14: What are the determinants of hiring? The role of demand and supply factors

Stefan Eriksson () and Karolina Stadin ()
Additional contact information
Stefan Eriksson: Department of Economics, Uppsala University, Postal: P O Box 513, SE-751 20 Uppsala, Sweden
Karolina Stadin: Department of Economics, Uppsala University, Postal: P O Box 513, SE-751 20 Uppsala, Sweden

Abstract: In this paper, we study the relative importance of demand and supply factors for hiring. We use a search-matching model with imperfect competition in the product market to derive an equation for total hiring in a local labor market and estimate it on Swedish panel data. If product markets are imperfectly competitive, product demand shocks should have a direct effect on employment. Our main finding is that product demand is important for hiring. This highlights the importance of taking imperfect competition in the product market into account in studies of employment dynamics and hiring. We also find that the number of unemployed workers has a positive effect on hiring, confirming the importance of search frictions. Hence, both demand and supply factors seem to matter for hiring.

Keywords: Hiring; search-matching; imperfect competition; unemployment

JEL-codes: E24; J23; J64

38 pages, June 17, 2015

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