Working Paper: NBER ID: w20568
Authors: Paul Beaudry; David A. Green; Benjamin M. Sand
Abstract: 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.
Keywords: Labor Demand; Wages; Employment; Search Frictions; Entrepreneurs
JEL Codes: J23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| wages (J31) | employment rates (J68) |
| local population (R23) | employment (J68) |
| wages (J31) | labor demand elasticity (J23) |