Scandinavian Working Papers in Economics

Working Paper Series,
Uppsala University, Department of Economics

No 2011:19: The Determinants of Hiring in Local Labor Markets: The Role of Demand and Supply Factors

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

Abstract: This paper studies the determinants of hiring. We use the search-matching model with imperfect competition in the product market from Carlsson, Eriksson and Gottfries (2011) to derive an equation for total hiring in a local labor market, and estimate it on Swedish panel data. When product markets are imperfectly competitive, product demand shocks have a direct effect on employment. Our results show that product demand is important for hiring. Moreover, we show that conventional measures of vacancies do not fully capture the effect of product demand on hiring. Finally, we show that the number of unemployed workers has a positive effect on hiring as predicted by search-matching models.

Keywords: Hiring; Search-matching; Imperfect Competition; Unemployment

JEL-codes: E24; J23; J64

33 pages, December 21, 2011

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