Employment Fluctuations Research Articles

Local labor demand and participation in social insurance programs

Based on administrative data from Norway, we explore the “gray area” between the roles of unemployment- and temporary disability-insurances by examining how participation in these two program types is affected by local labor demand conditions. Local labor demand is identified by means of a shift-share instrumental variables strategy, where initial local industry-composition is interacted with subsequent national industry-specific employment fluctuations. Our results indicate that local labor demand has a large negative effect on the propensity to claim disability insurance, which, for some groups, is remarkably similar to its effect on the propensity to claim unemployment insurance. Based on this finding, we question whether it is meaningful to maintain a sharp distinction between these two programs.

Seasonal Food Insecurity among Farm Workers in the Northern Cape, South Africa.

Very little is known about seasonal hunger in South Africa, or about the food security and nutritional status of farm workers. This article identifies a pathway to seasonal hunger—through intra-annual fluctuations in agricultural employment and income—that is underanalyzed in the literature. We report on findings from a year-long data collection process, comprising baseline and endline surveys and monthly monitoring of three food security indicators, with a sample of 195 female farm workers in the Northern Cape province in South Africa. The three monthly monitoring indicators—the Household Food Insecurity Access Scale (HFIAS), Dietary Diversity Score (DDS), and Coping Strategies Index (CSI)—which measure different aspects of food insecurity, are analyzed to determine whether and to what extent food security fluctuates seasonally in our sample. HFIAS results show unambiguous evidence of seasonal food insecurity, with the highest prevalence (88 percent experiencing severe food insecurity) and severity during the low employment winter period, and lowest prevalence (49 percent) and severity during the summer harvest, which corresponds with relatively higher employment and earnings. The DDS results show evidence of highest dietary diversity during summer and the CSI results reveal the need to employ coping strategies to deal with intensified food insecurity during winter.

BUSINESS CYCLE FLUCTUATIONS WITH THE DIVISION OF PERMANENT AND TEMPORARY EMPLOYMENT

In the mainstream real business cycle (RBC) model, labor can be viewed as temporary employment since the firm's demand for labor behaves directly in response to stochastic productivity shocks in each period. This paper provides a tractable way of analyzing fluctuations in permanent and temporary employment over the business cycle, as well as the underlying driving forces. This inclusion of heterogeneity helps reconcile the RBC model with the U.S. data given that temporary employees in general only account for a small proportion of total private‐sector employment (about 2%–3%). We draw an explicit division between permanent and temporary employment and resort to this separation to account for stylized facts that characterize a two‐tier labor market. In particular, with regard to the U.S. labor market, our benchmark model can well explain the motivating facts: (1) temporary employment is much more volatile than permanent employment, (2) the share of temporary employment (the ratio of temporary to aggregate employment) exhibits strong pro‐cyclicality, (3) permanent employment lags by two quarters on average, and (4) the correlation between temporary employment and output is stronger than that involving the permanent counterpart. The quantitative analysis suggests that our proposed channels explain the main facts well and the model further provides plausible reasoning for a firm's labor hoarding. (JEL E24, E32)

Dynamism Diminished: The Role of Housing Markets and Credit Conditions

The Great Recession and its aftermath saw the worst relative performance of young firms in at least 35 years. More broadly, as we show, young-firm activity shares move strongly with local economic conditions and local house price growth. In this light, we assess the effects of housing prices and credit supply on young-firm activity. Our panel IV estimation on MSA-level data yields large effects of local house price changes on local young-firm employment growth and employment shares and a separate, smaller role for locally exogenous shifts in bank lending supply. A novel test shows that house price effects work through wealth, liquidity and collateral effects on the propensity to start new firms and expand young ones. Aggregating local effects to the national level, housing market ups and downs play a major role – as transmission channel and driving force – in medium-run fluctuations in young-firm employment shares in recent decades. The great housing bust after 2006 largely drove the cyclical collapse of young-firm activity during the Great Recession, reinforced by a contraction in bank loan supply. As we also show, when the young-firm activity share falls (rises), local employment shifts strongly away from (towards) younger and less-educated workers.

Labour Market Institutions and Amplification of Employment Fluctuations

Abstract Labour market reforms have been undertaken to eliminate labour market rigidities in European countries since 1970s. The important features of the reforms are the reduction in adjustment costs and the introduction of fixed-term contracts (FTC). Some empirical studies point out that employment fluctuations have become more volatile after the reforms. This paper presents a model with FTC and analyzes the effects of the key features of the reforms. Numerical examples show that an expected productivity shock causes the oscillatory behaviour of employment. Moreover, a reduction in adjustment costs amplifies fluctuations. In the labour market literature, a number of studies point out the importance of trade unions in European countries. This paper also analyzes the effects of union influence, and the numerical examples indicate that the stronger union influence leads to larger employment fluctuations.

Assessment of Risk Management for Small Residential Projects in Thailand

Developing residential projects has frequently been noticed for unsuccessful delivery a project. It was due to various obstacles to its successful implementation. This study attempted to establish the major factors which delivery a completion of residential project. A multiple research approach involving interviews and a questionnaires survey was adopted for the study. Interviews were carried out amongst purposively selected practitioners (land owner, developer, consultant and contractor) while questionnaire survey was conducted among 120 randomly from primary selected practitioner group to examine the identified factors. The factors identified as barriers to complete a construction and measures to overcome potential barriers to construction were evaluated and ranked according to their mean scores. It was found that operational errors, payment delays, design errors, operating cost fluctuation, delay of development process, interest rate, natural disaster, employment fluctuation, instability in politics and changes in legislation were ten highest risk factor which have impact to performance of management in residential projects.

Employment Adjustment and Part-Time Work: Lessons from the United States and the United Kingdom

We document that fluctuations in part-time employment play a major role in movements in hours per worker during cyclical swings in the labor market. Building on this result, we develop a stock-flow framework to describe the dynamics of part-time employment. The evolution of part-time employment is predominantly explained by cyclical changes in transitions between full-time and part-time employment. Those transitions occur overwhelmingly at the same employer, entail sizable changes in individual working hours and are associated with an increase in involuntary part-time work. Our findings provide a novel understanding of the cyclical dynamics of labor adjustment on the intensive margin. (JEL E24, E32, J22, J23)

Local Labor Demand and Participation in Social Insurance Programs

Based on administrative data from Norway, we explore the grey area between the roles of unemployment- and temporary disability-insurances by examining how participation in these two program types is affected by local labor demand conditions. Local labor demand is identified by means of a shift-share instrumental variables strategy, where initial local industry-composition is interacted with sub-sequent national industry-specific employment fluctuations. Our results indicate that local labor demand has a large negative effect on the propensity to claim disability insurance, which, for some groups, is remarkably similar to its effect on the propensity to claim unemployment insurance. Based on this finding, we question whether it is meaningful to maintain a sharp distinction between these two programs.

Entrepreneurial tail risk: Implications for employment dynamics

New businesses are important for job creation and have contributed more than proportionally to the recent economic fluctuations. Given the risk exposure of entrepreneurs, this paper asks whether changing risk can explain the dynamics of new businesses. It makes two contributions. First, it provides a tractable, quantitative framework for analyzing business creation when entrants are exposed to idiosyncratic risk. Second, it provides conditions under which data on the size distribution of new businesses and their exit rates identifies entrepreneurial risk. According to the structural estimates, fluctuations in such risk explain around 40% of the employment fluctuations at new U.S. businesses.

PUBLIC SECTOR WAGE PREMIUM AND OUTPUT VOLATILITY IN THE EUROPEAN UNION

This study seeks to uncover the role played by the public sector wage premium in explaining the output volatility. Furthermore, the study also explores the factors that might substantiate the cross-country differences in the volatility of the public sector wage premium. Using cross-sectional regression analysis for the European Union countries, the findings indicate that more volatile public sector wage premium is associated with higher fluctuations in the private sector employment and less stable growth. Findings also suggest that volatility of the public sector wage premium tends to be larger in countries with smaller governments and in countries where collective bargaining is the predominant regime for public sector wage setting.

Gain-Loss Utility, Equilibrium and Interest Rates

The author assesses the factors that determine market interest rates and the equilibrium conditions with respect to aggregate desired borrowings and savings. According to gain-loss utility, aggregate desired borrowings and savings are in equilibrium when market interest rates equal the aggregated income-growth expectations in the economy. Such equilibrium results in a steady-state economy but not necessarily full employment. In a monetary economy, bank-financed demand creates its own nominal supply with prices and employment being the unknown residuals. This means that agents spend money borrowed from banks in anticipation of future incomes. To achieve any level of output and employment, a monetary economy must bootstrap, whereby incomes must be anticipated ex-ante in order to be generated ex-post. The author finds that the supply of base money by the central bank may prevent interest rates in capital markets from converging with the aggregated income-growth expectations in the economy, resulting in fluctuations in nominal incomes, prices and employment.

Immigrants’ employment and the business cycle in Spain: taking account of gender and origin

The purpose of this paper is to provide an empirical overview of the relationship between the business cycle and the immigrant employment cycle in Spain, differentiating by gender and origin, during the period 1999–2017. The study focuses on three main goals. First, we identify and compare the phases and the main features of the female and male immigrant employment cycles and the business cycle by means of their turning points. This target also includes the analysis of the differences in the cyclical pattern between immigrants’ and natives’ employment. Second, we wonder to what extent the global financial crisis initiated in the middle of 2007 modified the cyclical fluctuations of immigrants’ employment and whether female and male employment presents significant differences. Finally, we study whether immigrants’ origin plays some role in employment fluctuations during the pre- and crisis periods. We find that in the Spanish economic upturns, the labour market is more prone to create immigrant males’ employment than females’, while in the downturns females’ employment shows more resilience. With regard to the natives, immigrants remain unemployed longer in downturns and are laid off before the economy reaches its peak. However, a stronger gain of immigrants’ employment appears to be present in periods of expansion and a weaker loss in periods of contraction. In the contraction periods, immigrant females present the highest chances of keeping their employment.

ECONOMIA CRIATIVA COMO ALTERNATIVA A REDUÇÃO DO EMPREGO DA INDÚSTRIA AUTOMOBILÍSTICA EM TAUBATÉ/ SP

The Taubate city has a strong expertise in industry, especially the automobile industry, which accounted for 44.91% of the local economy in 2012, according to data from the Seade Foundation in 2012. This sectoral dependence implies fluctuations in employment in periods of retraction of the vehicles market, as occurred after 2013. However, the municipality has potential for expansion of activities linked to the chains of creative economy, with the presence of significant cultural diversity pertinent to the material and immaterial patrimony. The main objective of this article is to verify the potential of activities related to the creative economy as an alternative in the generation of labor occupations in the face of the retraction of employment in the traditional productive sectors, such as the automobile industry. The research is characterized as exploratory, with a qualitative approach, based on documentary data collection. The representativeness of the jobs and income of the creative economy sector in the municipality and greater employment growth in this sector were verified in relation to the jobs of the traditional sectors. It is concluded that the creative economy represents in Taubate a productive chain that contributes to the generation of employment and income and that can be potentialized as a local development strategy.

Wage Flexibility and Employment Fluctuations: Evidence from the Housing Sector

Many economists suspect that downward nominal wage rigidities in ongoing labour contracts are an important source of employment fluctuations over the business cycle, but there is little direct empirical evidence on this conjecture. This paper compares three occupations in the housing sector with very different wage setting institutions: real estate agents, architects and construction workers. I study the wage and employment responses of these occupations to the housing cycle, a proxy for labour demand shocks to the industry. The employment of real estate agents, whose pay is far more flexible than the other occupations, indeed reacts less to the cycle than employment in the other occupations, although specific estimates are noisy. I show that the aggregate implications of the estimates depend also on the aggregate labour demand elasticity, which captures how easily laid off workers can find employment in alternative sectors.

Employment Adjustment Over the Business Cycle: The Impact of Competition in the Labor Market

Using linked employer-employee data which covers the majority of U.S. employment, I examine how frictions in the labor market have evolved over time. I estimate that the labor supply elasticity to the firm declined by approximately 0.19 log points (1.20 to 1.01) since the late 1990's, with the steepest declines occurring during the financial crisis. I find that this decline in labor market competition cost workers about 4 percent in lost earnings. I also find evidence that relatively monopsonistic firms smooth their employment behavior, growing at a rate lower than relatively competitive firms in good economic climates and slightly higher during poor economic climates. This conforms with the predictions of recent macroeconomic search models which suggest that frictions in the economy may actually reduce employment fluctuations.

The Real Effects of Judicial Enforcement: Evidence from Italy

This paper shows that judicial enforcement has substantial effects on firms’ decisions with regard to their employment policies. To establish causality, I exploit a reorganization of the court districts in Italy involving judicial district mergers as a shock to court productivity. I find that an improvement in enforcement, as measured by a reduction in average trial length, has a large, positive effect on firm employment. These effects are stronger in firms with high leverage, or that belong to industries more dependent on external finance and characterized by higher complementarity between labor and capital, consistent with a financing channel driving the results. Moreover, in presence of stronger enforcement, firms can raise more debt to dampen the impact of negative shocks and, in this way, reduce employment fluctuations.

Is the labor wedge due to rigid wages? Evidence from the self-employed

A central goal of labor economics is explaining cyclical variation in hours worked. Procyclical hours can always be explained in a market clearing model with a residual tax wedge, the “labor wedge.” Convincing progress has been made in reducing the cyclical volatility in the labor wedge and therefore explaining movements in hours worked by amplifying technology shocks with endogenously rigid wages [Hall, R. E., 2005. Employment Fluctuations with Equilibrium Wage Stickiness. American Economic Review 95 (1), 50–65.],[Shimer, R., 2010. Labor Markets and Business Cycles. Number 9217 in Economics Books, Princeton University Press.], and rigid wages in general. This paper demonstrates that the cyclical component of labor hours for the self-employed, who are not vulnerable to such frictions, is of comparable cyclicality and volatility as the cyclical component of labor hours for wage and salary workers, even conditioning on wages, consumption, and occupation-industry composition. This finding suggests that explaining the labor hours of the self-employed presents a new test for amplification mechanisms.

The Growth Potential of Startups over the Business Cycle

This paper shows that employment in cohorts of US firms is strongly influenced by aggregate conditions at the time of their entry. Employment fluctuations of startups are procyclical, they persist into later years, and cohort-level employment variations are largely driven by differences in firm size, rather than the number of firms. An estimated general equilibrium firm dynamics model reveals that aggregate conditions at birth, rather than post-entry choices, drive the majority of cohort-level employment variation by affecting the share of startups with high growth potential. In the aggregate, changes in startup conditions result in large, slow-moving fluctuations in employment. (JEL D25, E24, E32, J23, L25, M13)

Firm size distribution and employment fluctuations: Theory and evidence

We show that the firm-size distribution is an important determinant of the relationship between an industry's employment and output. A theoretical model predicts that changes in demand for an industry's output have larger effects on employment, resulting from adjustments at both the intensive and extensive margin, in industries characterised by a distribution that has a lower density of large firms. Industry-specific shape parameters of the firm size distributions are estimated using firm-level data from Germany, Sweden and the UK, and used to augment a relationship between industry-level employment and output. The empirical results align with the predictions of the theory.

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.