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Labor Market Competition and Employment Adjustment over the Business Cycle

Labor Market Competition and Employment Adjustment over the Business Cycle <p>ABSTRACT:</p><p>Using linked employer–employee data that 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 significantly (1.20–1.01) since the late 1990s, with the steepest declines occurring during the financial crisis. I find that this decline in labor market competition led to at least a 4 percent drop in earnings for the average worker. 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 that suggest frictions in the economy may actually reduce employment fluctuations due to adjustment costs associated with hiring and laying off workers.</p> http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Human Resources University of Wisconsin Press

Labor Market Competition and Employment Adjustment over the Business Cycle

Journal of Human Resources , Volume 57 (3) – Mar 29, 2022

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Publisher
University of Wisconsin Press
Copyright
Copyright © Board of Regents of the University of Wisconsin System
ISSN
1548-8004

Abstract

<p>ABSTRACT:</p><p>Using linked employer–employee data that 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 significantly (1.20–1.01) since the late 1990s, with the steepest declines occurring during the financial crisis. I find that this decline in labor market competition led to at least a 4 percent drop in earnings for the average worker. 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 that suggest frictions in the economy may actually reduce employment fluctuations due to adjustment costs associated with hiring and laying off workers.</p>

Journal

Journal of Human ResourcesUniversity of Wisconsin Press

Published: Mar 29, 2022

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