The Impact of Labor Market Conditions on Job Creation: Evidence from Firm Level Data
نویسنده
چکیده
Labor market conditions, i.e. labor market tightness and prevailing wages, determine the cost of hiring new workers and thus can have a profound impact on employment growth. In this paper, I estimate firm level elasticity of labor demand with respect to changes in labor market conditions, allowing for heterogeneous response both across firms and across regions. I consider changes along two margins: labor market tightness and wages, and quantify the contribution of each margin to employment growth. Using the employer-employee matched dataset from Brazil, I show that a one percent increase in labor market tightness reduces employment growth by 1 percentage points, and a one percent increase in wages reduces employment growth by 1-2 percentage points. I find that low-paying firms have 20-30% larger labor demand elasticity than high-paying firms. However, the contribution of labor market conditions to regional employment growth is small, and most of the effect of labor market conditions is driven by changes in labor market tightness rather than wages. JEL Classification: J23
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