Garibaldi, Pietro
(1996)
Job creation, job destruction and employment reallocation: Theory and evidence.
PhD thesis, London School of Economics and Political Science.
Abstract
This thesis consists of four essays on the determinants, the dynamics and the policy implications of simultaneous job creation and destruction in labour markets. Firstly, it proposes and solves a stochastic search model with endogenous job separation and it shows that the amplitude and time variation of job reallocation depend crucially upon the arrival rate of exogenous firing permissions. Tighter firing restrictions, albeit not directly relevant for differences in average unemployment rates, dramatically reduce the relative volatility of job creation and destruction. A parameterization of the model can rationalise cross-country differences in the cyclical behaviour of job creation and destruction. Secondly, it brings together aggregate data on job reallocation and labour market policy for nine OECD countries. It shows that long term unemployment and job reallocation are negatively correlated and that job reallocation is lower in countries that offer limited benefit for a limited period of time. Thirdly, it studies the role of time-consuming search in generating the size distribution of firms and the dynamics of firm-level turnover. It solves a dynamic matching model where the joint distribution of wages and employment results from interacting idiosyncratic shocks, firm-level asymmetries in job creation and destruction and time-consuming search on the part of workers. Theoretical results offer a structural interpretation of existing empirical evidence on firm-size wage differentials and point out novel empirical implications. Finally, it measures the relation between job flows and establishment size applying econometric techniques best suited for analysing the dynamics of large cross-sections. Using a balanced panel from the Mexican Manufacturing sector it finds no evidence of small establishments converging toward the mean, thus no evidence of convergence.
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