Beveridge Curve Equilibrium Search Displacement
Expert TheoryClinical Trial
Assisting a subset of firms with recruitment reduces their individual hiring costs, but in aggregate, increased labor market tightness shifts positions along the Beveridge curve, crowding out hiring at non-assisted competing firms.
Picture this
Think of multiple boats fishing in a lake with a limited number of fish. Equipping one group of boats with better nets allows them to catch fish faster, but as the total fish supply in the lake drops, the remaining unequipped boats find it much harder to catch anything.
What the evidence says
At a baseline market tightness of 0.42, the ratio of net aggregate employment creation to measured direct firm impact is estimated at 0.68, demonstrating that market-wide displacement offsets 32% of direct firm hiring gains.
- Who was studied
- N = 7,438 firms calibrated within 322 commute-zone labor markets in France.
- How
- Mortensen-Pissarides search and matching theoretical model extended with decreasing returns to scale and sticky real wages.
What to do
Incorporate labor market tightness adjustments and Beveridge curve dynamics into macroeconomic models when projecting aggregate employment impacts from firm-level recruitment subsidies.
From the source
"The new aggregate labor demand curve leads to a new equilibrium in which tightness increases causing a downward adjustment in the level of employment in both treated and non-treated firms compared to the employment level with unchanged labor market conditions."
Are_Active_Labor_Market_Policies_Directed_at_Firms_Effective_Evidence.pdf