Net Employment Change Research Articles

Exchange rate fluctuations, labour laws, and gender differences in job flows: Analysis of manufacturing industries across Indian states

India’s disappointing performance in creating productive employment for women, in spite of its increased integration with the world markets, contrasts with the experience of several countries in Asia. A number of studies have analysed the supply and demand side factors responsible for this situation. However, no study has examined the gender differences in job flows – job creation, destruction and reallocation. Net employment changes may conceal large changes in gross job flows and the associated adjustment costs. Using plant level panel data from India’s formal manufacturing sector for the period 1998–2014, this paper estimates the magnitude of job flows and analyses the impact of industry-level changes in exchange rates on job flow dynamics of men and women across state-industries. Even as net employment grew sluggishly for women, we find that, the labour market was characterised by a simultaneous process of job destruction and creation. Our analysis provides evidence for an asymmetric impact of exchange rates on job flows, with depreciation (appreciation) resulting in higher (lower) gross job creation rates with no effect on job destruction rates. Exchange rate depreciation results in higher gross and net job creation rates for both men and women in states with flexible labour laws. In states with inflexible labour laws, however, depreciation causes an increase in gross job creation for women (but not for men) with no effect on net job creation. Exchange rate depreciation also causes women to face higher job reallocation than men, particularly in states with inflexible labour laws. Participation in global value chains and output tariff reductions are found to exacerbate the effects of exchange rate changes on women’s job flows. Firms operating under rigid labour market conditions tend to employ female workers as a ‘buffer’ to adjust the workforce in response to short term fluctuations in export competitiveness.

Productivity and job reallocation: evidence from the Indian manufacturing

PurposeThis study aims to examine the association between productivity growth and job reallocation in terms of job creation and job destruction. It also finds this productivity employment relationship for heterogeneous labor market institutions of the Indian states.Design/methodology/approachThe paper uses longitudinal data of the Annual Survey of Industries of Indian manufacturing from 2009–2010 to 2015–2016 and employs fixed-effect multinomial logistic regression.FindingsThe paper finds a mixed result of total factor productivity (TFP) increase on employment. An increase in TFP is positively associated with employment by reducing the probability of destroying jobs, while adversely associated with employment by reducing the probability of creating jobs. The negative association of the increase in TFP on employment is more in the Indian states with strict labor regulations.Research limitations/implicationsThe relationship between TFP and employment can be endogenous. TFP is calculated as output changes that are not explained by inputs, capital and labor. So, job creation/destruction may affect TFP by changing the composition of employment and/or returns on labor/capital. In addition, this study is only restricted to Indian organized manufacturing.Practical implicationsThe results from this study help deeply understand the Indian labor market. In particular, it provides valuable insights into the “jobless growth” in Indian manufacturing and the recent changes in labor laws.Social implicationsThe findings from this study provide useful information to enhance the robust growth of productive jobs and efficient reallocation of labor.Originality/valueUnlike most papers, which analyzed the relationship between productivity growth and net employment changes, the present paper finds the relationship between improvement in productivity and job reallocation in terms of simultaneous creation of new jobs and destruction of existing jobs. In addition, the paper links this relationship with the existing heterogeneous labor laws of the Indian states.

STRUCTURAL ESTIMATION OF LABOR ADJUSTMENT COSTS WITH TEMPORALLY DISAGGREGATED DATA

I estimate a dynamic optimization model of labor adjustment of establishments based on data that permit: specifying any desired adjustment frequency; estimating the model based on net and on gross employment flows; and allowing for simultaneous hirings and separations. The unit of observation is an establishment. Results for adjustment costs depend crucially on the model specification. Only a monthly adjustment model yields cost parameters in a reasonable range, while estimates from quarterly and annual adjustment models imply negative or excessive adjustment costs. Estimating the model on net employment changes implies hiring and separation costs of four annual median salaries, while the model on gross changes implies costs on the order of 1.7 annual median salaries. (JEL C25, D22, J23)

Where do jobs go when oil prices drop?

In this paper, we estimate a factor augmented vector autoregressive (FAVAR) model to investigate the effect of oil price shocks on total private job flows as well as on industry-level job creation and destruction. Following an unexpected oil price drop in the first year, we find that in oil and gas extraction and support activities for mining exhibit a reduction in job creation and an increase in job destruction. Instead, industries in construction, manufacturing and services exhibit an increase in the net employment change. An unexpected decline in the real oil price slows down the pace of gross job reallocation. We demonstrate that the increase (decrease) in private job destruction (creation) observed during the first year is primarily driven by the response of closing (expanding) firms in services and manufacturing.

Jobs: More Slowly Created, More Slowly Destroyed

Employment can swing widely during economic expansions and contractions. During the most recent recession, the total number of jobs fell by about 5.5 percent, a drop of roughly 7.6 million jobs. 1 The economy has improved substantially since the downturn, and in 2015 the total number of jobs has surpassed pre-recession lev els. At the industry level, the recovery from this recession has been far from balanced. Certain industries experi enced strong recoveries, while others still remain below their prerecession highs. In particular, the bulk of employment gains were concentrated in the professional business services, leisure and hospitality, and education and health services industries with increases of roughly 6, 10, and 15 percent, respectively. Numerous job losses occurred in the con struc tion, manufacturing, and information industries with declines of 20, 12, and 9 percent, respectively. 2 These rates reflect net employment changes for the dif ferent industries. However, more than 7 million jobs are created and almost as many are destroyed in the U.S. economy every quarter . 3 During recessions, fewer jobs are created and more are destroyed, leading to a net drop in total employment. During expansions, the opposite hap pens and more jobs are created than destroyed. The large magnitudes of job creation and destruction highlight the dynamism of the U.S. labor market and the pace at which resources are reallocated to alternative—presumably better—uses. The accompanying figure shows the pace of job cre ation and destruction relative to employment for a select ed group of industries with the largest net job gains and loss es in the most recent downturn and subsequent recovery. The series are interpreted as the number of jobs created or destroyed in a quarter relative to the total number of jobs at the end of the quarter. For example, on average, 4.2 per cent of manufacturing jobs are created and 4.6 percent are destroyed each quarter. With the exception of education and health services, all industries destroy more jobs than they create during recessions (denoted by the shaded bars in the graphs). Despite the large cyclical swings in net employment and gross job destruction and creation rates, most industries share a common feature: The rate of job creation and destruction has been falling. In other words, all the graphs exhibit a common downward trend. This reduced dynamism in the labor market is consistent with more stable and longer-lasting employment relationships, given that fewer jobs are being destroyed. However, it is also consistent with a longer duration of joblessness and less job switching, as fewer jobs are being created.

The impact of regional location factors on job creation, job destruction and employment growth in manufacturing

Regions are exposed to intensive competition to provide the most attractive location conditions for firms and their employees. Therefore, regional employment development depends to a decisive degree on the attractiveness of regional location factors. Based upon the creation of establishment-level panel data from Official Statistics for manufacturing in Baden-Wuerttemberg, Germany, from 1980 to 1999 this paper gives an empirical analysis of the impact of regional location conditions on regional manufacturing employment growth. In particular, the paper examines whether the impact of regional location conditions on regional net employment growth is driven by the underlying gross components job creation and/or job destruction. The results indicate that lower regional costs of production and a better regional endowment with skilled labour and R&D promote manufacturing employment growth. Thereby, lower costs of production as measured by a lower wage level stimulate employment growth by decreasing gross job destruction, while a better human capital endowment and a higher regional R&D intensity enhance employment growth by higher rates of gross job creation. Regions characterised by a smaller average firm size in manufacturing experienced higher manufacturing employment growth both by higher rates of job creation and lower rates of job destruction. On the other hand population density stimulates job creation as well as job destruction which lead to a zero effect on the scale of net employment change—indicating a compensation effect “behind the scenes”. Otherwise, the analysis reveals the tendency for regional location factors to influence either only gross job creation or only gross job destruction, but seldom both sides at the same time.

Firm Dynamics: Employment Dynamics Arising from Firm Growth and Contraction in Canada, 2001 to 2009

This paper looks at annual changes in Canadian business sector employment from 2001 to 2009. This period encompasses an expansionary phase (2001 to 2008), followed by a recession (2008/2009). Firm-level data are used to decompose yearly net employment change into gross employment creation and destruction, which makes it possible to measure the size of total annual employment reallocation. These measures of employment turnover are compared across industries and firm size classes.More studies related to industrial dynamics and to labour market dynamics are available in Update on Economical analysis.

Measures of Employment Turnover Post 2000: Gross Employment Gains and Losses Versus Net Employment Change

This article in the Economic Insights series decomposes business-sector annual net employment growth into gross employment creation and gross employment destruction at the firm level. It is based on research carried out by Statistics Canada on the topic of business dynamics.The net employment created or destroyed in the business sector in a given year provides only a partial picture of the employment change constantly taking place at the firm level. Some firms shrink or go out of business even during expansions, while other firms appear or expand even during recessions. This paper studies employment dynamics in the business sector during the period 2001 to 2009.

The Cleansing Effect of Offshore Outsourcing in an Analysis of Employment

Despite the public concern regarding the destructive employment effect of offshore outsourcing, empirical studies of U.S. multinationals find that the effect is ambiguous. This paper presents theoretical and numerical analyses of labor market implications of offshore outsourcing. I construct a partial equilibrium model of outsourcing with heterogeneous firms. Heterogeneity in productivities generates different firm-level responses to outsourcing: the most productive firms outsource, the least productive firms are forced to exit (Cleansing Effect), and the firms with intermediate productivity level continue operating as home-producers. The theory generates a strong prediction that offshore outsourcing unambiguously reduces aggregate employment at home. The numerical analysis, with calibration to U.S. manufacturing sector, shows that the strong negativity of the employment effect stems from the cleansing effect. It also shows that the net effect within outsourcing firms is ambiguous due to a sizeable job creation. By decomposing net employment loss into job destruction and creation, this paper finds that the net employment change can be less than half of the gross employment change, and that the layoffs by outsourcers account for the majority of total job destruction. These findings suggest that the previous empirical studies, of outsourcing firms alone, understate the negative impact of offshore outsourcing on employment.

Sustained High Rates Of Job Creation And Destruction In Substate Economies

<p class="Ariel12" style="text-align: justify; margin: 0in 0.5in 0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 10pt; mso-bidi-font-style: italic;">Widely utilized net employment change statistics actually mask an extremely volatile process of job creation and destruction.<span style="mso-spacerun: yes;">  </span>In the past decade economists have addressed this problem by exploiting newly available longitudinal data series to estimate these job flows and the subsequent amount of job churning at the national, state and MSA level.<span style="mso-spacerun: yes;">  </span>This study is unique in that it uses an innovative technique to capture job flows within and between industries at the local area level where longitudinal BLS data series are not available. </span></p><p class="Ariel12" style="text-align: justify; margin: 0in 0.5in 0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 10pt; mso-bidi-font-style: italic;"> </span></p><p class="Ariel12" style="text-align: justify; margin: 0in 0.5in 0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 10pt; mso-bidi-font-style: italic;">The geographic unit of analysis in this paper is a Cohesive Commercial Statistical Area™ (CCSA), a substate aggregate of cities and towns sharing common economic interests but not a Metropolitan Statistical Area.<span style="mso-spacerun: yes;">  </span>The paper examines job flows in two very different Massachusetts substate economies: the MetroWest CCSA, a technology sensitive research and development economy, and the South Shore CCSA, a mature economy with a competitive edge in financial services. This study establishes that a sizable portion of disaggregated job flows can be captured at a substate level using available employment data. Building upon techniques used in earlier studies, the authors confirmed very high levels of employment volatility, “job churning”, in both substate regions. </span></p><p class="Ariel12" style="text-align: justify; margin: 0in 0.5in 0pt;"><span style="font-size: 10pt; mso-bidi-font-style: italic;"><span style="font-family: Arial;"> </span></span></p><p class="Ariel12" style="text-align: justify; margin: 0in 0.5in 0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 10pt; mso-bidi-font-style: italic;">The authors found that over two decades, job reallocation rates in MetroWest averaged 9%, affecting one out of 11 jobs annually. The study traced the pattern of job creation and destruction over the course of local business cycles and found that both job creation and destruction existed during all phases of the business cycle. Although, as expected, job creation dominated the expansion phase and destruction dominated the contraction phase, the total amount of job reallocation (creation plus destruction) remained relatively stable through all stages of the business cycle.<span style="mso-spacerun: yes;">   </span>However, the composition of the job reallocation varied dramatically by stage of business cycle.<span style="mso-spacerun: yes;">  </span>A Job Replacement Ratio has been developed as a quick test to confirm economic expansion or contraction and to focus economic development efforts.</span></p>

Moving Across Borders: The Determinants of Interstate Business Relocation

Businesses moving to other states spark political accusations and concerns about state business climates. However, previous work has demonstrated that interstate business relocation is rare. This short note documents the considerable variation in business relocation rates among states and tests several explanations for this variation. The same states tend to exhibit higher rates of relocation both into and out of the state. Relocation accounts for higher shares of gross employment changes in states where more economic activity is located near the state border. Net employment change has only a modest relationship with in-migration rates and no significant relationship with out-migration rates, confirming that jobs leaving the state are not a bellwether of poor state economic performance.

Sectoral Transformation, Turbulence and Labor Market Dynamics in Germany

AbstractThis paper analyzes the interaction between structural change and labor market dynamics in West Germany, during a period when industrial employment declined by more than 30% and service sector employment more than doubled. Using transition data on individual workers, we document a marked increase in structural change and turbulence, in particular since 1990. Net employment changes resulted partly from an increase in gross flows, but also from an increase in the net transition ‘yield’ at any given gross worker turnover. In growing sectors, net structural change was driven by accessions from nonparticipation rather than unemployment; contracting sectors reduced their net employment primarily via lower accessions from non-participation. German reunification and Eastern enlargement appear to have contributed significantly to this accelerated pace of structural change.

Business Dynamics Statistics: An Overview

The Business Dynamics Statistics (BDS) includes measures of establishment openings and closings, firm startups, job creation and destruction by firm size, age, and industrial sector, and several other statistics on business dynamics. The U.S. economy is comprised of more than 6 million establishments with paid employees. The population of these businesses is constantly churning - some businesses grow, others decline, and yet others close. New businesses constantly replenish this pool. The BDS series provides annual statistics on gross job gains and losses for the entire economy, and by industrial sector and state. These data track changes in employment at the establishment level, and thus provide a picture of the dynamics underlying aggregate net employment growth.The Business Dynamics Statistics is a product of the U.S. Census Bureau and was developed by the Center for Economic Studies. The BDS data are compiled from the Longitudinal Business Database (LBD) (Jarmin and Miranda, 2002). The LBD is a longitudinal database of business establishments and firms covering the years between 1976 and 2005 (as additional years of the LBD are available, the BDS will be updated).The LBD is constructed by linking annual snapshot files from the Census Bureau’s Business Register (BR)1 to provide a longitudinal history for each establishment. The linkage process makes use of numeric establishment identifiers as well as probabilistic name and address matching. The linkage process allows the tracking of net employment changes at the establishment level, which, in turn, allows the estimation of jobs gained at opening and expanding establishments, and jobs lost at closing and contracting establishments.The LBD originally was conceived and constructed to be a research dataset. It has been used in numerous studies published in leading scholarly journals. It also has seen increased use as a source of special tabulations. The growing demand for tabulations from the LBD is why the Census Bureau has developed the BDS.

Diagnosing Labor Market Search Models: A Multiple-Shock Approach

This paper constructs a multiple-shock version of the Mortensen-Pissarides labor market search model to investigate the basic model's well-known tendency to under predict the volatility of key labor market variables. Data on U.S. job finding and job separation probabilities are used to help estimate the parameters of a three-dimensional shock process comprising labor productivity, job separation, and matching or 'allocative' efficiency. The authors show that the Mortensen-Pissarides labor market search model requires significantly procyclical and volatile job separations to simultaneously account for high procyclical variations in jobfinding probabilities as well as relatively small net employment changes. Hence, the model is more fundamentally flawed than its inability to amplify shocks would suggest. This leads the authors to conclude that the model lacks mechanisms to generate procyclical matching efficiency and labor force reallocation. As for the latter, the authors conjecture that nontrivial labor force participation and job-to-job transitions are promising avenues of research.

Der Beschäftigungsbeitrag kleiner und mittlerer Unternehmen nach der EU-Definition / The Employment Contribution of Small and Medium-sized Enterprises According to the EU-definition

Summary Statements emphasizing the major contribution of the small and medium sized enterprises (SMEs) for net job creation are quite frequent. Concerning the current definition of SMEs provided by the European Commission (EC), this paper makes a first attempt to approximate SMEs’ contribution to net employment change based on the IAB-Establishment Panel Data over the years 1998 to 2005 for the whole private economy. Due to sufficient data, independent one-plant firms with less than 250 employees may approximate the group of SMEs according at best. Comparisons with the firm-level Amadeus database validate the suitability of the IAB-establishment panel data for calculation of the SMEs’ employment share, as long as one controls for the establishments’ independence status. The employment share lies about fifty percent. As a matter of fact, the employment share of affiliated SMEs increases over time. Furthermore, independent small plants do not show higher net employment change rates than neither affiliated plants nor middle-sized and large plants. The results reinforce once again the impression that empirical evidence for the assumed superiority of SMEs, is very weak. Further research should mention the role of ownership and firms venturing on the level of firm as well as for the economy at all in more detail.

The Geography of Gross Employment Flows in British Manufacturing

This article offers a first attempt to examine subnational differences in the determinants of gross employment flows in the British manufacturing sector utilizing the Annual Respondents Dataset (ARD) of the Office of National Statistics. The article has four broad aims. First, it examines how the job creation and destruction process in British manufacturing compares with the processes in other countries. Second, it examines how much job creation and destruction is the result of employment shifts from declining industries and post-code areas to growing industries and areas relative to employment turnover that occurs among plants within industries and areas.The results indicate that high rates of job creation and destruction occur simultaneously in contracting as well as expanding industries and areas, suggesting that differences in net employment change can only be considered as a first step to understanding employment turnover. Third, the article investigates differences in the driving forces of job creation and destruction for British postcode areas and uncovers pronounced variation in the forces generating and destroying employment. Fourth, the article examines how much of these subnational differences can be attributed to industrial structure and reveals that industry-mix accounts for a large part of employment turnover in postcode areas.The large variation in the driving forces of job creation and destruction leads to important consequences for employment policy.Policies which focus too narrowly on new-firm start-ups and small firms are likely to be insufficient in generating employment in all areas.

Employment changes, the structure of adjustment costs, and plant size

In this paper, we analyze the pattern of employment adjustment using a rich panel of Norwegian plants. The data suggest that the frequency of episodes of zero net employment changes is inversely related to plant size. We develop and estimate a simple “ q” model of labor demand, allowing for the presence of fixed, linear and quadratic components of adjustment costs. The econometric evidence supports the existence of purely fixed components, unrelated to plant size. As a result, the range of inaction is wider for smaller plants. The quadratic component of costs is also always important. In most specifications fixed costs are higher for employment contractions. The quadratic component is higher during employment contractions compared to expansions for small plants, while this is not true for larger plants.

The Geography of Job Creation and Destruction in the U.S. Manufacturing Sector, 1967–1997

Much geographical research focuses on the causes of geographical differences in net employment change. While net employment change is an important indicator of regional growth and decline, it masks the underlying process of creative destruction resulting in tremendous employment turnover rates. Labor economists and those who work in industrial organization emphasize the importance of theorizing the individual processes of job creation and destruction to uncover technological and institutional differences among industries and over the business cycle. This work demonstrates that over the course of a year, 10 percent of all jobs are destroyed and close to 10 percent of jobs are newly created. This article bridges the work of geographers on net employment change and the nongeographical work in industrial organization and provides the first comprehensive account of regional and metropolitan differences of job creation and destruction in U.S. manufacturing. Plant level data of the U.S. Census Bureau show that geographical differences in net employment change are primarily the result of differences in job creation rates and to a lesser extent in job destruction rates, that different types of plants drive the job creation process in different metropolitan areas, and that the snowbelt/sunbelt dichotomy collapses in the 1990s with selected midwestern urban areas among the fastest growing areas in the country.

Employment Changes, the Structure of Adjustment Costs, and Plant Size

In this paper we analyze the pattern of employment adjustment using a rich panel of Norwegian plants. The data suggest that the frequency of episodes of zero net employment changes is inversely related to plant size. We develop and estimate a simple q model of labor demand, allowing for the presence of fixed, linear and convex components of adjustment costs. The econometric evidence supports the existence of purely fixed components, unrelated to plant size. As a result, the range of inaction is wider for smaller plants. The quadratic components of costs are also important. Finally, in most specifications both fixed and convex costs are higher for employment contractions.

Job creation, job destruction, and the real exchange rate

Welfare gains from trade are reduced by adjustment costs associated with factor reallocation, but most studies of the effects of trade on labor markets focus only on net employment change. This paper takes a step toward identifying trade-related adjustment costs by estimating the effects of real exchange rates on labor reallocation using a new model of gross job creation and destruction applied to detailed U.S. manufacturing industries between 1973 and 1993. Trend real exchange rates significantly affect job reallocation but not net employment. Cyclical real exchange rates significantly affect net employment through job destruction only.