L. Broersma

Job Creation and Job Destruction by Small Firms: An Empirical Investigation for the Dutch Manufacturing Sector

This paper studies the differences in behaviour of small and large firms, concerning job creation and job destruction, in the Dutch manufacturing sector over the period 1978–1991. We find that both job creation and job destruction rates are higher in small firms than in large ones. In addition, we found that the persistence of jobs created in slumps are much higher for small firms than for large firms. Persistence rates of job destruction are, however, less connected to the state of the business cycle and increase with firm size. More importantly, small firms seem to reallocate their jobs in a continuous way, as job turnover moves independent of the business cycle. Large firms, on the other hand, reallocate counter-cyclically. An obvious explanation for this phenomenon is that small firms are better equipped to adjust to shifts in economic circumstances. Large firms adjust only slowly and for them reallocating jobs in a recession is more advantageous than in a boom.

The relation between unemployment and interest rate

In bierens (1987) a granger casual relation was found between unemployment and the interest rate for the netherlands. In the present paper we will investigate whether there exists a similar granger casual relation between unemployment and interest rate for a number of other countries. It appears that, with our ARMAX modeling approach, this relationship is not confined to the netherlands, but also holds for the USA, Canada, Japan, Germany, the UK and France. For these countries the interest rate is the main explanatory variable, together with industrial production (the latter with one exception), whereas for most countries the wage rate is of minor or no importance as a determinant of unemployment. A number of economic theories can explain these phenomena of which the revenue maximization theory of baumol (1959) augmented with a flexible labor effort rate seems quite realistic

Job flows in Dutch manufacturing, 1979-1993. Empirical evidence and theoretical implications

In the past decade the number of studies in labour market dynamics has proliferated. Especially the papers by Davis and Haltiwanger ~1990, 1992! on job creation and job destruction in the USA were followed by a host of studies on job flows in other countries. Examples include Burda and Wyplosz ~1994! for a number of European countries, Leonard and Van Audenrode ~1993! for Belgium and Blanchflower and Burgess for the UK. In this paper, we will describe and characterize the flows of job creation and job destruction in the Dutch manufacturing sector and we will discuss the implications of our results for a number of currently developed economic theories on job and firm turnover. For extensive treatment of these recent theories, see Jovanovic~1982!, Davis and Haltiwanger ~1990!, Caballero and Hammour ~1994!, Burda and Wyplosz~1994!, and Mortensen and Pissardes ~1994!. Most empirical studies of job flows rely on longitudinal plant-level employment observations. For The Netherlands, we have three potential sources. The one used by Hamermesh et al. ~1994! is based on a data set of Dutch firms in all economic sectors. Its major drawback, however, is that it is limited to only one year, so no account can be taken of entry and exit of firms. The second source is an annual survey by the Dutch Chambers of Commerce including firms of all sectors for the period 1987–1992. In this data set, only firms with more than 50 employees are present on a full sample basis; cf. Van der Hoeven and Verhoeven ~1994!. The source we use is based on a panel of firm-level data in the manufacturing sector collected by The Netherlands’ Central Bureau of Statistics over the period 1978– 1993. Our main findings are summarized in the following points. ~1! Firms, even defined in a narrowly defined class ~two-digit SBI, the Dutch SIC system !, are

The effect of wage restraint on labour market flows

The effects are studied of a wage restraint policy on flows in the labour market. Flows into and out of employment are distinguished and simple models are considered for these flows. Wage costs, in particular, are found to affect the flow of employment into unemployment, which can be considered as a measure of job destruction, but wage costs have no effect on the number of new hires, which can be considered as a measure of job creation. Therefore, wage moderation has preserved jobs that would otherwise have been destroyed. The inflow of new hires is influenced by investments, the generosity of the social benefit system and by structural mismatch. Apart from wage costs, interest costs of firms also play a role in the job destruction process, particularly since the beginning of the 1980s.

Labour demand and job-to-job movement

The relationship between labour demand and job-to-job movement is investigated, both theoretically and empirically, at the macro level. It concentrates on the role of the employment regime (hiring, do-nothing or firing) and the hiring and firing costs. The exact upper bounds of the marginal hiring costs of an employed worker are derived, for which job mobility between two firms yields a positive aggregate relationship between job-to-job movement and employment. The relationship is estimated as a cointegration model for the Netherlands; it appears that the inclusion of the job-to-job mobility rate may provide a substantial improvement of the estimated labour-demand equation.

The use of dummy variables in consumption models

In this paper the consumption model in Winder and Palm [1989] is subjected to a sensitivity analysis. Small and reasonable change in several dummy variables provide that the original model with a moving planning horizon becomes observationally equivalent with a random walk specification.

Quits, layoffs, and job destruction

We examine the quit–layoff distinction and its implications for job destruction from the employers perspective. Using a set of panel data of Dutch firms, we get the following results. First, in addition to layoffs, quits contribute to the speed of downward adjustment of labour. Second, about 22% of the jobs of workers who resigned are destroyed. It is not clear-cut whether these resignations are initiated by employers or employees.

Unemployment in a Bankruptcy Constrained Model

This paper proposes a model of labour demand based on a bankruptcy constrained firm. This implies two different regimes for the process generating labour demand: one when this bankruptcy constraint is not binding and one when it is. The same applies to unemployment. This unemployment model is applied to U.S. quarterly data, where account is being taken of the two regimes by dummy variables based on the turning points of the NBER business indicator. It appears that the variables affecting U.S. unemployment in the respective regimes are also the ones predicted by our theoretical model. Copyright Fondazione Giacomo Brodolini and Blackwell Publishers Ltd. 1997.