Labor Demand on a Tight Leash

Abstract

"We develop a labor demand model that encompasses pre-match hiring cost arising from tight labor markets. Through the lens of the model, we study the effect of labor market tightness on firms’ labor demand by applying novel shift-share instruments to the universe of German firms. In line with theory, we find that a doubling in tightness reduces firms’ employment by 5 percent. Taking into account the resulting search externalities, the wage elasticity of firms’ labor demand reduces from -0.7 to -0.5 through reallocation effects. In light of our results, pre-match hiring cost amount to 40 percent of annual wage payments." (Author's abstract, IAB-Doku) ((en))

Cite article

Bossler, M. & Popp, M. (2024): Labor Demand on a Tight Leash. (IZA discussion paper / Forschungsinstitut zur Zukunft der Arbeit 16837), Bonn, 99 p.