Testing Theories of Job Creation: Does Supply Create its Own Demand?

26 Pages Posted: 10 Mar 2006

See all articles by Mikael Carlsson

Mikael Carlsson

Sveriges Riksbank - Research Department; Sveriges Riksbank

Stefan Eriksson

Uppsala University - Department of Economics

Nils Gottfries

Uppsala University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

Date Written: December 2006

Abstract

Search-matching theory has come to dominate labor economics in recent years, but few attempts have been made to compare the empirical relevance of search-matching theory to efficiency wage and bargaining theories, where employment is determined by labor demand. In this paper we formulate an empirical equation for net job creation, which encompasses search-matching theory and a standard labor demand model. Estimation on firm-level data yields support for the labor demand model. Wages and product demand affect job creation. We find no evidence that unemployed workers contribute to job creation, as predicted by search-matching theory.

Keywords: Job Creation, Involuntary Unemployment, Search-Matching, Labor Demand, Competitiveness

JEL Classification: E24, J23, J64

Suggested Citation

Carlsson, Mikael and Eriksson, Stefan and Gottfries, Nils, Testing Theories of Job Creation: Does Supply Create its Own Demand? (December 2006). IZA Discussion Paper No. 2024, CESifo Working Paper Series No. 1866, Riksbank Research Paper Series No. 27, Sveriges Riksbank Working Paper No. 194, Available at SSRN: https://ssrn.com/abstract=887303 or http://dx.doi.org/10.2139/ssrn.887303

Mikael Carlsson

Sveriges Riksbank - Research Department ( email )

S-103 37 Stockholm
Sweden

HOME PAGE: http://www.riksbank.com/research/carlsson

Sveriges Riksbank ( email )

Brunkebergstorg 11
SE-103 37 Stockholm
Sweden

Stefan Eriksson

Uppsala University - Department of Economics ( email )

Box 513
SE-75120 Uppsala
Sweden
+46 18 471 1132 (Phone)
+46 18 471 1478 (Fax)

Nils Gottfries (Contact Author)

Uppsala University - Department of Economics ( email )

Box 513
SE-75120 Uppsala
Sweden
+46 18 471 2304 (Phone)
+46 18 471 1478 (Fax)

HOME PAGE: http://www.nek.uu.se/faculty/gottfries/index.html

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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