(), Julián Messina
() and Oskar Nordström Skans
Mikael Carlsson: Uppsala Center for Labor Studies, Postal: Department of Economics, Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden
Julián Messina: World Bank, and IZA
Oskar Nordström Skans: Uppsala Center for Labor Studies, Postal: Department of Economics, Uppsala University, 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 primarily downsize through increased separations of both short- and long-tenured workers even when they could have adjusted their employment through reduced hires.
57 pages, December 2, 2014
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