Dynamic Labor Demand Research Articles

Flexible Use of the Large-Scale Short-Time Work Scheme in Germany during the Pandemic: Dynamic Labour Demand Models Estimation with High-Frequency Establishment Data

Our study uses 24 waves of the survey Establishments in the COVID-19 crisis (BeCOVID), a high-frequency dataset collected at monthly intervals by the Institute for Employment Research during the COVID-19 pandemic, to investigate the behaviour of establishments with respect to the dynamics of their employment, in particular their use of short-time work. Due to the high-frequency intervals, the present data are considerably better suited than annual panel surveys to investigate adjustment processes. This is especially true for the role of short-time work, which is seen as a particularly fast adjustment option and thus reduces adjustment costs rapidly. Our estimations reveal a much faster overall workforce adjustment process compared with previous studies, which rely on annual panel surveys. In addition, our empirical results show that the employment adjustment in establishments using short-time work during the COVID-19 crisis occurred almost immediately within one month.

The Seasonal Labor Hoarding in Tourist Enterprises—Choice or Necessity?

The seasonality of tourism demand is a natural condition for the functioning of tourist enterprises and affects the choice of employment practice. The aim of the research is to identify the practices of employing workers in tourism industry enterprises and try to understand the determinants of these decisions. The main research questions were what employment practices are used in tourist enterprises and how does the opinion on the condition of the local labor market influence this choice? It was assumed that, in the tourism industry, seasonal fluctuations can be treated the same way cyclical fluctuations are treated in the analysis of dynamic labor demand. The basis for the conclusions was the results of a survey conducted in the tourism industry enterprises in the seaside region of Poland. In the tourist region of the Polish Baltic Sea, 75.6% of tourist enterprises use the practice of total or partial labor hoarding, and 24.4% of enterprises do not use the practice of labor hoarding. They immediately adjust employment to seasonal changes in demand.

Firm’s globalization and wage elasticity of labour demand in South Korea

ABSTRACT This study investigates the effects of exports and overseas investments on the wage elasticity of labour demand for both foreign multinational corporations (MNCs) and Korean MNCs using a 2006–2015 firm-level unbalanced panel dataset from South Korea. I employ the system generalized method of moments to estimate a dynamic labour demand function to solve the problem of reverse causality due to potential endogeneity. The results suggest that exports play a critical role in increasing wage elasticity among foreign MNCs, whereas overseas investments render labour demand more elastic among both foreign MNCs and Korean MNCs. Particularly, these effects of globalization on increasing wage elasticity became strengthened among foreign MNCs during the post-financial crisis period. Moreover, the intra-firm and inter-firm exports of foreign MNCs from OECD nations, which reflect the vertical integration of foreign MNCs with their affiliated firms, increase the wage elasticity of labour demand. Since overseas investments induce higher wage elasticity of labour demand, overseas investment substitutes for local production activity. These empirical results imply that the rapid pace of globalization exacerbates the instability of the local labour market, and the aggravation of employment vulnerability during the post-crisis period is driven by foreign MNC activity.

The impact of high-technology trade on employment

This paper aims to empirically examine the impact of high-technology trade on employment. A dynamic labour demand equation is employed to investigate the impact of high-tech trade on employment in 20 high-tech exporting countries. Using data from 2007 to 2016, this study highlights some evidence on the negative relationship between high-tech trade and employment. This paper argues the development towards high-tech trade should be accompanied by appropriate policy measures to lessen the employment effect and to ensure the benefit of growth is well-distributed among all segments of the labour market.

Worker churn in the cross section and over time: New evidence from Germany

Worker churn is procyclical in the German labor market. We study the plant-level connection of churn and employment growth using the new Administrative Wage and Labor Market Flow Panel from 1975 to 2014. Churn is V-shaped in employment growth. Through analyzing this pattern by worker skill, age, and tenure, we establish that churn is unlikely to result from plant reorganization but rather from uncertainty about match quality. In a dynamic labor demand framework with a time-to-hire friction, churn can be interpreted as a manifestation of idiosyncratically stochastic separation shocks. These shocks become larger and more predictable during booms, leading to procyclical churn.

Foreign Direct Investment and Employment in Indian Manufacturing Industries

This paper examines the employment effect of foreign direct investment (FDI) in India’s manufacturing industries. It also examines whether the nature of employees mediates the employment effect of FDI in the manufacturing industry. The paper employs a balanced panel data of 54 three-digit industries from the Annual Survey of Industries for the period 2008–2009 to 2015–2016. Estimating a dynamic labour demand model through the system generalised method of moments estimator, it does not find any considerable effect of FDI on employment in India’s manufacturing industries. Even after controlling for the kind of employees, FDI has not been found to have any significant impact on domestic demand for labour in Indian manufacturing industries. This study thus does not consider FDI as an important channel for employment generation in the manufacturing industry in India.

Foreign Ownership and Labor Demand by Skill in the Tunisian Manufacturing Industry: A Firm-Level Investigation

This paper aims to examine the impact of foreign ownership on the employment of different skill groups in Tunisian manufacturing industries. The empirical investigation is based on a rich and unique firm-level dataset covering the period 1997–2007. The estimation of a dynamic labor demand function using the system GMM estimator brings out many interesting findings. First, results indicate that foreign ownership has a positive effect on total employment. Second, when decomposing employment according to skill level, we reveal that the foreign ownership of firms affects positively unskilled labor demand and negatively skilled labor demand. Furthermore, the effects are higher in small and medium-sized enterprises and firms belonging to low technology industries. Findings also suggest no significant differences between short- and long-run effects of foreign ownership on the employment of different skill groups. Finally, the main results of the research hold even when estimating the labor demand functions simultaneously using the three-stage least squares estimator. The policy implications are correspondingly derived.

Worker Churn in the Cross Section and Over Time: New Evidence from Germany

Worker churn, that is, worker flows in excess of job flows, is procyclical in the German labor market. To understand this procyclicality, we study the plant-level connection of churn and employment growth, using the new Administrative Wage and Labor Market Flow Panel from 1975 to 2014, and find that churn rises in the absolute value of employment growth. Analyzing this V-shaped churn-employment growth nexus by worker skill, age, and tenure, we establish that churn is unlikely to result from plant reorganization but rather from the correction of labor market mismatches. Using a simple dynamic labor demand framework, we argue that the cross-sectional evidence on churn can be interpreted as manifestations of idiosyncratically stochastic separation shocks in conjunction with a time-to-hire friction. These shocks become larger and more predictable during booms leading to procyclical churn, which, as we show, (1) increases almost uniformly across the employment growth distribution, and (2) stems almost exclusively from job-to-job transitions. Procyclical churn, thus, reflects a more active reshuffling of workers towards individually better matches in booms.

Destruction or Polarization: Estimating the Impact of Technology on Jobs in Indian Manufacturing

Indian manufacturers have invested significantly in technological upgradation since the opening up of Indian economy to foreign trade and technology in the mid-1980s. In this paper, we examine the impact of technology on employment and skill demand within Indian manufacturing sector. Estimating a dynamic labour demand equation, we find that despite reducing the required labour per unit of output, technology has not reduced the aggregate employment in Indian manufacturing sector. However, qualitative effect of technology on labour demand has been very significant. Our results show that adoption of new technology has increased the demand for high-skilled workers at the cost of intermediary skills, leading to the polarization of manufacturing jobs. It suggests that perhaps technology has reduced the routine-task content of manufacturing jobs in India.

Fixed-term contracts as a source of labour demand fluctuations

ABSTRACTEmployment fluctuations are one of the central issues in the business cycle literature. The fluctuations depend crucially not only on the economic conditions but also on the labour market institutions. Since most previous studies have assumed indefinite-term contracts (ITC) implicitly, the implications of fixed-term contracts (FTC) on dynamic labour demand have been rather overlooked. This article investigates dynamic labour demand of a firm with FTC to show that the employment fluctuations under FTC can be totally different from those under ITC. In particular, a productivity shock that takes place at a future date generates the current fluctuations in employment under FTC, while it does not under ITC.

Bootstrap-based Bias Correction and Inference for Dynamic Panels with Fixed Effects

In this article, we describe a new command, xtbcfe, that performs the iterative bootstrap-based bias correction for the fixed-effects estimator in dynamic panels proposed by Everaert and Pozzi (2007, Journal of Economic Dynamics and Control 31: 1160–1184). We first simplify the core of their algorithm by using the invariance principle and subsequently extend it to allow for unbalanced and higher-order dynamic panels. We implement various bootstrap error resampling schemes to account for general heteroskedasticity and contemporaneous cross-sectional dependence. Inference can be performed using a bootstrapped variance–covariance matrix or percentile intervals. Monte Carlo simulations show that the simplification of the original algorithm results in a further bias reduction for very small T. The Monte Carlo results also support the bootstrap-based bias correction in higher-order dynamic panels and panels with cross-sectional dependence. We illustrate the command with an empirical example estimating a dynamic labor–demand function.

Measuring the impact of the Chinese competition on the Mexican Labor Market: 1990–2013

The purpose of this paper is to analyze the effects that the Chinese competition has had on the Mexican labor market considering that both countries offer abundant low-skill workers and that China is one of the largest export countries, which directly competes with Mexico in the manufacturing industry. Particularly, panel data is used to estimate a dynamic labor demand and a dynamic wage equation to measure direct and indirect effects of the Chinese competition over these two variables. A negative direct impact was found, due to the Chinese imports into Mexico, affecting employment, and on a smaller scale affecting wages. Evidence was not found recording an indirect impact (via the US market) neither on employment nor on wages. Finally, our results indicate that increases in the share of imports of the United States from Mexico are associated with increases in employment in Mexico but not with wages.

Dynamic labor demand in China: public and private objectives

This article studies dynamic labor demand by private and public manufacturing plants in China. The analysis uncovers the objectives of public and private enterprises and estimates labor adjustment costs by ownership. Public plants maximize the discounted present value of profits without a soft budget constraint. There is strong evidence of quadratic and linear firing costs at the plant level. The higher quadratic adjustment costs of the public plants may reflect their internalization of social costs of employment adjustment. Domestic private plants and collective plants have about the same discount factor, much lower than state‐controlled plants.

Employment effects of foreign direct investment: New evidence from Central and Eastern European countries

This paper examines the role of FDI as a determinant of employment by using a dynamic labor demand model applied for a panel of 20 Central and Eastern European Countries during the period 1995–2012. Our results indicate that FDI leads to a phenomenon of creative destruction. The introduction of labor saving techniques leads to an initial negative effect on employment, while the progressive vertical integration of foreign affiliates into the local economy eventually converges toward a positive long run effect. However, this phenomenon is only observed in EU countries. Our analysis thus gives partial support to the worries that FDI may displace jobs. Still, the relative importance of FDI as a determinant of employment is modest compared to economic restructuring and output growth. Finally, our results show evidence of a skill bias of production in foreign affiliates, as human capital favors a positive contribution of FDI to employment.

Employment Effects of Foreign Direct Investment. New Evidence from Central and Eastern European Countries

This paper examines the role of FDI as a determinant of employment by using a dynamic labor demand model applied for a panel of 20 Central and Eastern European Countries during the period 1995–2012. Our results indicate that FDI leads to a phenomenon of creative destruction. The introduction of labor saving techniques leads to an initial negative effect on employment, while the progressive vertical integration of foreign affiliates into the local economy eventually converges toward a positive long run effect. However, this phenomenon is only observed in EU countries. Our analysis thus gives partial support to the worries that FDI may displace jobs. Still, the relative importance of FDI as a determinant of employment is modest compared to economic restructuring and output growth. Finally, our results show evidence of a skill bias of production in foreign affiliates, as human capital favors a positive contribution of FDI to employment.

LABOR CONTRACTS AND FLEXIBILITY: EVIDENCE FROM A LABOR MARKET REFORM IN SPAIN

This paper evaluates the effects of a labor market reform in Spain that removed restrictions on fixed‐term or temporary contracts. Our empirical results are based on longitudinal firm‐level data that cover observations before and after the reform. We posit and estimate a dynamic labor demand model with indefinite and fixed‐term labor contracts, and a general structure of labor adjustment costs. Experiments using the estimated model show important positive effects of the reform on total employment (i.e., a 3.5% increase) and job turnover. There is a strong substitution of permanent by temporary workers (i.e., a 10% decline in permanent employment). The effects on labor productivity and the value of firms are very small. In contrast, a counterfactual reform that halved all firing costs would produce the same employment increase as the actual reform, but much larger improvements in productivity and in the value of firms. (JEL J23, J32, J41)

Firing Costs and Flexibility: Evidence from Firms' Employment Responses to Shocks in India

A key prediction of dynamic labor demand models is that firing restrictions attenuate firms' employment responses to economic fluctuations. We provide the first direct test of this prediction using data from India. We exploit the fact that rainfall fluctuations, through their effects on agricultural productivity, generate variation in local demand within districts over time. Consistent with the theory, we find that industrial employment is more sensitive to shocks where labor regulation is less restrictive. Our results are robust to controlling for endogenous firm placement and vary across factory size in a pattern consistent with institutional features of Indian labor law.

Common Agricultural Policy effects on dynamic labour use in agriculture

The aim of this study is to investigate the effects of direct payments and rural development measures of the EU’s Common Agricultural Policy (CAP) on employment in agriculture. We work with a dynamic labour demand equation augmented by the full set of policy instruments of the CAP, which is estimated on a panel dataset of 69 East German regions. We present results for four estimators which differ in how they eliminate the fixed effects and how they address the endogeneity of the lagged dependent variable. The results suggest that there were few desirable effects on job maintenance in agriculture. While there is some indication that investment subsidies have halted labour shedding on farms, a rise in the general wage level reduced labour use in agriculture. Changes in direct payments had no employment effects. Generally, labour adjustment exhibits a strong path dependency.

Inter-industry employment spillovers from tourism inflows

How much economic stimulus does tourism provide by generating jobs in various local industry sectors? Using data across 43 U.S. metropolitan statistical areas during 1987–2006, we analyze the impact of tourism inflows — proxied by the number of hotel rooms sold — on the employment in 22 non-hotel industries. We estimate a dynamic labor demand model with inter-industry spillover effects, using various estimators including GMM-based dynamic panel methods. We find statistically and economically significant effects — an additional 100 rooms sold per day during a year in a given MSA generates between 2 and 5 new jobs per non-hotel industry in that area. Subsample analyses across industries indicate that construction, retail, health care, professional and technical services are among the largest beneficiaries of these spillovers.

Work organization, labour contracts and employment

PurposeTo ease adjustments in the labour market, many countries have softened their legislation since the 1970s by introducing flexible labour contracts or by making their use easier. The purpose of this paper is to document labour management of temporary contracts during the last 20 years in Belgium, compared to the situation in its neighbouring countries. The authors investigate the determinants of the use of flexible labour contracts and the consequences of their introduction on labour dynamics.Design/methodology/approachA dynamic Probit is considered to model the use of fixed term labour contracts (FTCs) and standard dynamic labour demand equations are used to test the impact of labour contracts on the labour adjustment at the firm level, using a panel of around 8,000 firms during the period 1998‐2005.FindingsThe results indicate that some firms follow labour management based on a core (indefinite term contracts – ITCs) and a peripheral component (FTCs) and manage temporary contracts on a “permanent” basis, from a long run perspective. Estimates also confirm a much faster temporary contracts employment adjustment, while ITCs adjustment does not depend on whether firms employ FTCs. ITCs short‐term employment elasticity with respect to wages suggests that workers protection against redundancies is strengthened when firms manage work organisation with both types of contracts. In contrast to ITCs, FTCs are used to meet unexpected demand shocks.Originality/valueThis paper contributes to the growing literature on the impact of the introduction of new flexible contracts on the labour demand at the firm level.