Working Paper: CEPR ID: DP12548
Authors: Klaus Gugler; Michael Weichselbaumer; Christine Zulehner
Abstract: To estimate demand for labor, we use a combination of detailed employment data and the outcomes of procurement auctions, and compare the employment of the winner of an auction with the employment of the second ranked firm (i.e. the runner-up firm). Assuming similar ex-ante winning probabilities for both firms, we may view winning an auction as an exogenous shock to a firm's production and its demand for labor. We utilize data from almost 900 construction firms and about 3,000 auctions in Austria in the time period 2006 until 2009. Our main results show that the winning firm significantly increases labor demand in the weeks following an auction. In the years before the recent economic crisis, it employs about 80 workers more two months after the auction than the runner-up firm. Winners predominantly fire fewer workers after winning than runner-up firms. In the crisis, however, firms do not employ more workers than their competitors after winning an auction. We discuss explanations like labor hoarding and productivity adjustments induced by the crisis for these results.
Keywords: Labor demand; Labor hoarding; Construction; Procurement; First-price auctions; Recent economic crisis
JEL Codes: D44; L10; L13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Winning a procurement auction (D44) | Labor demand of the winning firm (J23) |
| Winning a procurement auction (D44) | Employment of the winning firm (M51) |
| Economic crisis (G01) | Employment effect of winning firms (L25) |
| Winning a procurement auction (D44) | Employment of the winning firm during crisis (H12) |
| Winning a procurement auction (D44) | Ability to hire more workers (J23) |
| Winning a procurement auction (D44) | Ability to fire fewer workers (J63) |