In Search of Labor Demand
Paul Beaudry, David A. Green, Ben M. Sand
American Economic Review · 2018 · Volume 108 · Issue 9
Abstract
We propose and estimate a novel specification of labor demand which encompasses search frictions and the role of entrepreneurs in new firm creation. Using city-industry variation over four decades, we estimate the wage elasticity of employment demand to be close to -1 at the industry-city level and -0.3 at the city level. We argue that the difference between these estimates reflects the congestion externalities predicted by the search literature. Our estimates also indicate that entrepreneurship should be treated as a scarce factor in the determination of labor demand. We use our estimates to evaluate the impact of large changes in the minimum wage on employment.
Keywords
Labor Demand, Wage Level and Structure, Wage Differentials, Wages, Compensation, and Labor Costs: Public Policy, Entrepreneurship, New Firms, Startups, Urban, Rural, Regional, Real Estate, and Transportation Economics: Regional Migration, Regional Labor Markets, Population, Neighborhood Characteristics
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