Aggregate Employment Growth Research Articles

Collateral-based monetary policy and corporate employment: Evidence from Medium-term Lending Facility in China

Collateral-based monetary policy tools in China aim to guide credit resources to the real economy by injecting base money into banks to support policy objectives, such as promoting employment. This study examines the effects of Medium-term Lending Facilities (MLF) on employment through the bank lending channel. The results of difference-in-differences estimation show that post-MLF implementation, employment growth and labor cost growth of firms with high MLF exposure increase by 8.04% and 5.74%, respectively. The channel test shows that commercial banks with high bond holdings significantly increase lending after MLF implementation, which subsequently increases employment for borrowers of these banks. This effect is more pronounced for firms with high dependence on external financing, strong financing constraints, no qualifications to issue bonds, high sales growth, and belonging to industries supported by industrial policies. MLF also improves the quality of employment, which in turn significantly increases the total factor productivity of firms. Finally, MLF also has a significant positive effect on local aggregate employment growth. Focusing on firm labor hiring decisions, which are crucial to real economic development and social stability, this study has important theoretical and practical implications for furthering our understanding of the effectiveness and feasibility of collateral-based monetary policy tools.

Is the German labour market granular?

ABSTRACT This paper is the first to investigate the relevance of the ‘granular hypothesis” proposed by Gabaix (Econometrica 2011) for employment growth. Using comprehensive data for Germany, we show that the establishment size distribution in terms of employment is indeed fat-tailed and that idiosyncratic shocks to large establishments explain a substantial portion of aggregate employment change. This relationship is more pronounced in the manufacturing than the service sector. Our findings may be an argument for stabilizing the largest establishments when hit by negative idiosyncratic shocks, since their employment fluctuations could spill over to aggregate employment growth.

Political Connections Reduce Job Creation: Firm-level Evidence from Lebanon

Using firm-level data, we document that politically connected firms (PCFs) create more jobs than unconnected firms in Lebanon. We observe, however, that the presence of PCFs in a sector is correlated with lower job creation. Although causality is difficult to establish due to endogeneity issues, we find that PCFs expand, and non-PCFs retract, more around elections. Our findings are consistent with the hypothesis that unfair competition by PCFs hurts unconnected competitors so much that aggregate employment growth in the sector is affected negatively.

Job creation, job destruction and reallocation in Sub-Saharan Africa: Firm-level evidence from Kenyan manufacturing sector

Is the poor aggregate employment growth of the manufacturing sector in Sub-Saharan African countries the outcome of inadequate job creation or rival forces of job creation and job destruction actin...

Pyramid capitalism: Cronyism, regulation, and firm productivity in Egypt

Using a large, original database of 385 politically connected firms under the Mubarak regime in Egypt, we document for the first time the negative impact of cronyism on economic growth. In the early 2000s, a policy shift in Egypt led to the expansion of crony activities into new, previously unconnected sectors. 4-digit sectors that experienced crony entry between 1996 and 2006 experienced lower aggregate employment growth during the period than those that did not. A wide array of supporting evidence indicates that this effect was causal, reflecting the mechanisms described in Aghion et al. (2001), and not due to selection. Crony entry skewed the distribution of employment toward smaller, less productive firms; crony firms did not enter into sectors that would have also grown more slowly even in the absence of crony entry; and they enjoyed multiple regulatory and fiscal privileges that reduced competition and investments by non-crony firms, including trade protection, energy subsidies, access to land, and favorable regulatory enforcement. Moreover, energy subsidies and trade protection account for the higher profits of politically connected firms.

Millionaires or Job Creators: What Really Happens to Employment Growth When You Stick It to the Rich?

We provide empirical evidence on the consequences of relatively higher tax burdens on the rich for aggregate employment growth using a newly constructed time series for 1947 through 2011 derived from the US Statistics of Income. In response to shifts in the relative federal tax burden toward the rich, we find statistically significant positive effects on employment growth in the short run and some evidence of negative effects on employment growth in the long run. Among our robustness checks, we use the Romer and Romer narrative record analysis to restrict our sample to a period of exclusively exogenous tax changes. The results hold in the restricted sample and are also consistent across alternative specifications and estimation methods, including unrestricted and Bayesian vector autoregressive.

Firm productivity, wages, and agglomeration externalities

Using detailed census data from Morocco, this paper investigates the existence of local externalities in manufacturing. In contrast to many other studies that focus on aggregate employment growth, we examine the effect of externalities on firm-level productivity and wages. Our empirical results show that agglomeration externalities occur through both productivity and wage effects. Returns to specialization are strong and large in magnitude. In accordance with the views of Marshall, Arrow and Romer, the net effect of competition on productivity and wages tends to be negative. Large firms facing no local competition have higher revenues and pay lower wages. We also find some limited evidence in favor of the diversity argument put forth by Jacobs.

Job Creation and Destruction: New Evidence on the Role of Small Versus Young Firms in Korea

Using the Census on Establishments data in Korea, the present study revisits the role of firm age and size to explain aggregate employment dynamics. We confirm the finding of Haltiwanger et al. that no systematic inverse relationship exists between net job growth and firm size once firm age is controlled for. We find that small businesses are driving forces of aggregate employment growth but that such high growth is mostly driven by the entry of very small firms, which is offset by job destructions of a similar magnitude. Moreover, entrepreneurial activity occurs among very small firms, whereas large start-ups are rarely observed.

Monitoring Economic Activity in Real Time Using Diffusion Indices: Evidence from the Fifth District

We provide an analysis that parses out the conditions under which diffusion indices based on disaggregated information are informative about overall economic activity. Building on work by Pinto, Sarte, and Sharp (2015), we highlight the fact that diffusion indices, appropriately scaled, capture contributions of changes in the extensive margin -- e.g. how many sectors are growing or declining rather than by how much individual sectors are growing or declining -- to aggregate growth. In the Fifth Federal Reserve District, for example, this margin captures the bulk of variations in aggregate employment growth. We then show that the Fifth District employment index, produced in real time using firm-level surveys, closely tracks a synthetic diffusion index constructed ex post using observed data. However, we also underscore that diffusion indices have their limitations. In the Fifth District, for example, the growth rate of average wages (relative to its mean) is frequently of a sign opposite to that indicated by changes in the extensive margin. Finally, we explore some of the implications of producing diffusion indices at a more localized level.

Minimum Wages and Aggregate Job Growth: Causal Effect or Statistical Artifact?

A recent paper by Meer and West argues that minimum wages reduce aggregate employment growth, and that this relationship is masked by looking at employment levels. I also find a negative association between minimum wages and aggregate employment growth using both the Business Dynamics Statistics and the Quarterly Census of Employment and Wages datasets, and it is sizable for some time periods. However, I show that this negative association is present in exactly the wrong sectors. It is particularly strong in manufacturing which hires very few minimum wage workers. At the same time, there is no such association in retail, or in accommodation and food services – which together hire nearly 2/3 of all minimum wage workers. These results indicate that the negative association between minimum wages and aggregate employment growth does not represent a causal relationship. Rather the association stems from an inability to account for differences between high and low minimum wage states and the timing of minimum wage increases. Consistent with that interpretation, when I use bordering counties to construct more credible control groups, I find no such negative correlation between minimum wages and overall employment growth.

The Role of Institutions and Firm Heterogeneity for Labour Market Adjustment: Cross-Country Firm-Level Evidence

This paper investigates the role of policies and institutions for aggregate labour market dynamics during the recent financial crisis using firm-level data. First, it provides comparable estimates on firm-level labor adjustment by country, industry and firm size. Second, using variance decomposition methods, it shows that differences in firm-level labor adjustment accounts for about 40% of the cross-country variation in aggregate employment growth at the outset of the crisis. We interpret this as evidence that differences in institutional settings accounted for a substantial part of the variation in aggregate employment growth. Third, we find that stronger protection for regular workers is associated with lower (higher) employment (earnings-per-worker) response in the wake of output shocks. This suggests employment protection shifts the burden of adjustment from the extensive to the intensive margin. However, in explaining the diverse cross-country patterns in employment adjustment during the crisis, the impact of employment protection alone seems to be small.

The Stock Market and Aggregate Employment

We study the interactions between the stock market and the labor market. When aggregate risk premiums are time-varying, predictive variables for market excess returns should forecast long-horizon growth in the marginal benefit of hiring and thereby long-horizon aggregate employment growth. Consistent with this logic, we document that long-horizon payroll growth and change in unemployment rate are predictable with risk premium proxies. Lagged payroll growth and change in unemployment rate also forecast stock market excess returns.

The cost of labor adjustment: Inferences from the gap

This paper studies the aggregate implications of micro-level labor adjustment costs. Caballero and Engel [Caballero, R., Engel, E., 1993. Microeconomic adjustment hazards and aggregate dynamics. Quarterly Journal of Economics 108, 313–358] find a dependence of aggregate employment growth on the cross sectional distribution of “employment gaps.” This paper uses those results as moments in an indirect inference procedure to infer the underlying labor adjustment costs. We specify a dynamic optimization problem at the plant level, allowing for both convex and non-convex adjustment costs. Consistent with evidence at the micro level, our findings indicate that non-convex adjustment costs are necessary to match these aggregate moments.

Did the pattern of aggregate employment growth change in the euro area in the late 1990s?

This paper examines whether the pattern of growth in euro area employment seen in the period 1997 to 2001 differs from that recorded in the past and what could be the reasons. First, a standard employment equation is estimated for the euro area as a whole. This shows that the lagged impact of both output growth and real labour cost growth, together with a productivity trend and employment ‘inertia’, can account for most of the employment developments between 1970 and the early 1990s. Conversely, these traditional determinants can only explain part of the employment development seen in recent years (1997 to 2001). Second, the paper shows sound evidence of a structural break in the aggregate employment equation in the late 1990s. Third, the paper provides some tentative explanations for this change in aggregate employment developments, using in particular country panels of institutional variables and of active labour market policies but also cross-sectional analyses. Among the relevant factors likely to have contributed to rising aggregate employment in recent years are changes in the sectoral composition of euro area employment, the strong development of part-time jobs, lower labour tax rates and possibly less stringent employment protection legislation and greater subsidies to private employment.

The Conservation Reserve Program: Economic Implications for Rural America

This report estimates the impact that high levels of enrollment in the Conservation Reserve Program (CRP) have had on economic trends in rural counties since the program's inception in 1985 until today. The results of a growth model and quasi-experimental control group analysis indicate no discernible impact by the CRP on aggregate county population trends. Aggregate employment growth may have slowed in some high-CRP counties, but only temporarily. High levels of CRP enrollment appear to have affected farm-related businesses over the long run, but growth in the number of other nonfarm businesses moderated CRP's impact on total employment. If CRP contracts had ended in 2001, simulation models suggest that roughly 51 percent of CRP land would have returned to crop production, and that spending on outdoor recreation would decrease by as much as $300 million per year in rural areas. The resulting impacts on employment and income vary widely among regions having similar CRP enrollments, depending upon local economic conditions.

Did the Pattern of Aggregate Employment Growth Change in the Euro Area in the Late 1990s?

The paper examines whether the pattern of growth in euro area employment seen in the period 1997-2001 differed from that recorded in the past and what could be the reasons for that. First, a standard employment equation is estimated for the euro area as a whole. This shows that the lagged impact of both output growth and real labour cost growth, together with a productivity trend and employment inertia, can account for most of the employment developments between 1970 and the early 1990s. Conversely, these traditional determinants can only explain part of the employment development seen in recent years (1997-2001). Second, the paper shows sound evidence of a structural break in the aggregate employment equation in the late 1990s. Third, the paper provides some tentative explanations for this change in aggregate employment developments, using in particular country panels of institutional variables and of active labour market policies but also cross-sectional analyses. Among the relevant factors likely to have contributed to rising aggregate employment in recent years are changes in the sectoral composition of euro area employment, the strong development of part-time jobs, lower labour tax rates and possibly less stringent employment protection legislation and greater subsidies to private employment.

Macroeconomic Effects of Sectoral Shocksin Germany, The U.K. and, The U.S.: A VAR-GARCH-M Approach

A VAR-GARCH-M model for aggregate employment and employment shares is developed to explore the macroeconomic effects of sectoral shocks. Using U.S., U.K. and German data, three main issues are investigated: the relevance of shocks volatility; the amount of aggregate employment growth variation accounted for by re-allocation shocks and the amount of aggregate innovation volatility explained by sectoral components. Bayesian methods are used for estimation model selection and innovation accounting – Bayes factors for model selection and MCMC for estimation. The results favor the VAR-GARCH-M model. A significant GARCH-M component indicates the presence of volatility clustering and the feedback of volatilities on aggregate employment and sectoral shares growth rates. The innovation analysis supports sectoral shocks as a triggering force for aggregate employment fluctuations. In all three countries, 45% to 55% of aggregate employment variation is accounted for by sectoral innovations.

Interregional gross migration and structural changes in local industries.

"In this paper the impacts of structural changes in local industries on interregional gross migration in Japan for 1974-85 are empirically examined. Structural changes in local industries, which are represented by a simple index of local employment growth dispersion across sectors, induce interregional migration, as well as intraregional migration. The estimation results with pooled data support this hypothesis. The impacts of structural changes in local industries are different across gross migration flows (rural-urban, urban-rural, urban-urban, and rural-rural migration), as are the impacts of other determinants of migration such as earnings differentials, aggregate employment growth, national unemployment, distance, and age structure."

Variation in Employment Growth in Canada: The Role of External, National, Regional, and Industrial Factors

This paper presents a method for assessing the impact of external, national, and sectoral shocks on Canadian employment fluctuations at the national, industry, and provincial levels. Special attention is given to the contribution of sectoral shocks to aggregate employment fluctuations. Shocks which initially affect specific industries and provinces can induce aggregate fluctuations not only because national employment is the sum of employment in various sectors but also because of feedback across sectors. The analysis is based on an econometric model relating employment growth in each province and industry to the current and lagged change in U.S. output, the lags of employment growth at the national, industry, and provincial levels, a Canadian national shock, and shocks affecting specific industries, specific pro- vinces, and specific province-industry pairs. The model is estimated using annual data on Canadian employment at the province-industry level. The results suggest that U.S. shocks are responsible for two-thirds of the steady-state variance in the growth of Canadian national employment, while the Canadian national shock accounts for approximately one quarter of this variance. Taken together, industry specific, province specific and province-industry spe- cific shocks account for about one-tenth of the variance of Canadian national employment growth. Although U.S. shocks are the dominant influence on aggregate employment growth in Canada, sectoral shocks account for about thirty percent of the variance in national employment due to Canadian sources. Estimates of the contribution of U.S., Canadian national, industry, and provincial shocks to the variance of employment in specific industries and pro- vinces are also provided.