Endogenous Vacancy Supply Response
Observational StudyReview
Standard partial equilibrium evaluations assume that labor demand and firm job creation remain fixed when active labor market policies are implemented. In reality, firms respond dynamically to increased worker search effort and lower reservation wages by creating additional job vacancies in the local economy.
Picture this
Think of a fisherman selling bait at a popular lake. If hundreds of anglers suddenly start fishing every morning with high-tech gear, fish are caught much faster, proving the lake is highly active. Seeing this surge in fishing activity and ease of filling orders, commercial boat owners decide to launch extra fishing charters because the chances of running a profitable trip have gone up.
What the evidence says
Log vacancy stocks in experiment counties increased significantly, peaking at an 18.2% increase (p < 0.01) in May/June 2006 (3-4 months post-assignment), resulting in a projected 2.4% net increase in overall economy-wide vacancy supply under full program rollout.
- Who was studied
- Monthly administrative vacancy data across 14 Danish counties from January 2004 to November 2007.
- How
- Difference-in-differences regression model with county and month fixed effects evaluating log vacancy stocks before, during, and after the experimental activation period.
What to do
Track aggregate monthly job opening postings following labor policy interventions to measure firm creation responses before concluding that job search assistance only reshuffles existing jobs.
From the source
"The parameter estimates reported in column (3) show that indeed during the experiment the stock of vacancies started to increase in the experiment regions compared to other regions. This effect peaked in May/June, so three to four months after the random assignment stopped..."
816b5187-9076-4043-aba7-184043b2e524-Estimating Equilibrium Effects of Job Search Assistance.pdf