In Search of Labor Demand

NBER Working Paper No. 20568

Issued in October 2014

NBER Program(s):Economic Fluctuations and Growth, Labor Studies



We propose and estimate a novel specification of the labor demand curve incorporating search frictions and the role of entrepreneurs in new firm creation. Using city-industry variation over four decades, we estimate the employment - wage elasticity to be -1 at the industry-city level and -0.3 at the city level. We show that the difference between these estimates likely reflects the congestion externalities predicted by the search literature. Also, holding wages constant, an increase in the local population is associated with a proportional increase in employment. These results provide indirect information about the elasticity of job creation to changes in profits.

Acknowledgments

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Document Object Identifier (DOI): 10.3386/w20568

Published: Paul Beaudry & David A. Green & Ben M. Sand, 2018. "In Search of Labor Demand," American Economic Review, vol 108(9), pages 2714-2757. citation courtesy of

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