Firm-Level Shocks and Labor Flows

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Peer Reviewed icon Peer Reviewed
Date issued
Jan 2021
Subject
Productivity;
Manufacturing Industry;
Labor Market;
Demand Shock;
Employee Selection
JEL code
J63 - Turnover • Vacancies • Layoffs;
D22 - Firm Behavior: Empirical Analysis;
J23 - Labor Demand
Country
Sweden
Category
Working Papers
This paper analyzes how labor ows respond to permanent idiosyncratic shifts in rm-level production functions and demand curves using very detailed Swedish micro data. Shocks to rms physical productivity have only modest eects on rm-level employment decisions. In contrast, the paper documents rapid and substantial employment adjustments through hires and separations in response to rm-level demand shocks. The choice of adjustment margin depends on the sign of the shock: rms adjust through increased hires if these shocks are positive and through increased separations if the shocks are negative.
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