Firm-Level Displacement Effects
RCTClinical Trial
Assisting targeted firms with recruitment can create negative indirect spillovers on non-assisted competing firms by crowding out their hiring opportunities in equilibrium [19-22].
Picture this
Imagine two fishing boats competing on the same lake; if one boat is given a high-powered radar to find fish faster, it catches more fish, leaving fewer fish in the water for the second boat to catch [21, 23].
What the evidence says
At a labor market tightness of 0.42, the ratio of aggregate net employment created per treated firm to the measured direct effect is estimated at 0.68, demonstrating that indirect negative displacement accounts for roughly 32% of direct firm-level employment gains [24, 25].
- Who was studied
- N = 7,438 firms across 129 local public employment agencies in France combined with equilibrium search model simulations [6, 7, 23].
- How
- Randomized Controlled Trial combined with a Mortensen-Pissarides equilibrium search and matching framework calibrated to baseline market tightness [19, 21-23].
What to do
Account for competitive displacement ratios when evaluating labor market interventions to avoid overestimating net aggregate job creation [20, 22, 26].
From the source
"Our simulations also show that displacement effects are not to be neglected even when the size of the intervention is small, but that they actually vary little with the size of the intervention." [20]
Are_Active_Labor_Market_Policies_Directed_at_Firms_Effective_Evidence.pdf