nep-lma New Economics Papers
on Labor Markets - Supply, Demand, and Wages
Issue of 2022‒01‒17
nineteen papers chosen by
Joseph Marchand
University of Alberta

  1. Labour-Saving Automation and Occupational Exposure: A Text-Similarity Measure By Montobbio, Fabio; Staccioli, Jacopo; Virgillito, Maria Enrica; Vivarelli, Marco
  2. Minimum Wages and Insurance Within the Firm By Erosyni Adamopoulou; Francesco Manaresi; Omar Rachedi; Emircan Yurdagul
  3. The Cost of Health Insurance and Entry into Entrepreneurship By Fossen, Frank M.; Hossain, Mobarak; Mukhopadhyay, Sankar; Toth, Peter
  4. Wage Posting or Wage Bargaining? A Test Using Dual Jobholders By Marta Lachowska; Alexandre Mas; Raffaele D. Saggio; Stephen A. Woodbury
  5. Macroeconomic Dynamics with Rigid Wage Contracts By Tobias Broer; Karl Harmenberg; Per Krusell; Erik Öberg
  6. U.S. Long-Term Earnings Outcomes by Sex, Race, Ethnicity, and Place of Birth By Kevin L. McKinney; John M. Abowd; Hubert P. Janicki
  7. Dead-end jobs or steppingstones? Precarious work in Albania By Drishti, Elvisa; Carmichael, Fiona
  8. Worker Beliefs About Outside Options By Simon Jäger; Christopher Roth; Nina Roussille; Benjamin Schoefer
  9. Hiring entrepreneurs for innovation By Louise Lindbjerg; Theodor Vladasel
  10. Covid-19 and Working from Home: toward a "new normal"? By Kosteas, Vasilios D.; Renna, Francesco; Scicchitano, Sergio
  11. Social Exclusion and Optimal Redistribution By Thomas Aronsson; Spencer Bastani; Khayyam Tayibov
  12. Time, Income and Subjective Well-Being - 20 Years of Interdependent Multidimensional Polarization in Germany By Merz, Joachim; Scherg, Bettina
  13. Reconstruction Aid, Public Infrastructure, and Economic Development: The Case of the Marshall Plan in Italy By Michela Giorcelli; Nicola Bianchi
  14. The Impact of the Capture of Leaders of Criminal Organizations on the Labor Market: Evidence from Mexico By Daniel Osuna Gómez
  15. Corporate Taxes and the Earnings Distribution: Effects of the Domestic Production Activities Deduction By Christine L. Dobridge; Paul Landefeld; Jacob Mortenson
  16. Identifying literacy and numeracy skill mismatch in OECD countries using the job analysis method By Pérez Rodríguez, Sandra; van der Velden, Rolf; Huijts, Tim; Jacobs, Babs
  17. Coupling Labor Supply Decisions: An Experiment in India By Matthew Lowe; Madeline McKelway
  18. The Effects of an Increase in the Retirement Age on Health – Evidence from Administrative Data By Barschkett, Mara; Geyer, Johannes; Haan, Peter; Hammerschmid, Anna
  19. Entry, Variable Markups, and Business Cycles By William L. Gamber

  1. By: Montobbio, Fabio (Università Cattolica del Sacro Cuore); Staccioli, Jacopo (Università Cattolica del Sacro Cuore); Virgillito, Maria Enrica (Università Cattolica del Sacro Cuore); Vivarelli, Marco (Università Cattolica del Sacro Cuore)
    Abstract: This paper represents one of the first attempts at building a direct measure of occupational exposure to robotic labour-saving technologies. After identifying robotic and LS robotic patents retrieved by Montobbio et al. (2022), the underlying 4-digit CPC definitions are employed in order to detect functions and operations performed by technological artefacts which are more directed to substitute the labour input. This measure allows to obtain fine-grained information on tasks and occupations according to their similarity ranking. Occupational exposure by wage and employment dynamics in the United States is then studied, complemented by investigating industry and geographical penetration rates.
    Keywords: labour-saving technology, natural language processes, labour markets, technological unemployment
    JEL: O33 J24
    Date: 2021–12
  2. By: Erosyni Adamopoulou; Francesco Manaresi; Omar Rachedi; Emircan Yurdagul
    Abstract: Minimum wages alter the allocation of firm-idiosyncratic risk across workers. To establish this result, we focus on Italy, and leverage employer-employee data matched to firm balance sheets and hand-collected wage oors. We nd a relatively larger pass-through of rm-specic labor-demand shocks into wages for the workers whose earnings are far from the floors, but who are employed by establishments intensive in minimum-wage workers. We study the welfare implications of this fact using an incomplete-market model. The asymmetric pass-through uncovers a novel channel which tilts the benets of removing minimum wages toward high-paid employees at the expense of low-wage workers.
    Keywords: Firm-specific shocks, pass-through, minimum wages, linked employer-employee data, general equilibrium, complementarities
    JEL: E24 E25 E64 J31 J38 J52
    Date: 2022–01
  3. By: Fossen, Frank M. (University of Nevada, Reno); Hossain, Mobarak (University of Nevada, Reno); Mukhopadhyay, Sankar (University of Nevada, Reno); Toth, Peter (University of Nevada, Reno)
    Abstract: Unavailable or expensive health insurance may hinder the transition of individuals from paid employment to entrepreneurship. The literature argues that the guaranteed availability of health insurance introduced by the Affordable Care Act (ACA) of 2010 could reduce this barrier to entrepreneurship and thereby increase entrepreneurial activity. In this paper, we investigate how much the cost of health insurance when leaving paid employment—given availability of health insurance—matters for the decision to become an entrepreneur. We use individual-level data from the Current Population Survey (CPS-ASEC) combined with county-level panel data on health insurance costs in local Health Insurance Exchanges (HIX) introduced by the ACA to estimate county-treatment fixed-effects regressions. The results indicate that increasing the premium of the benchmark HIX plan by $100 per month decreases the annual probability of entry into self-employment by 0.25 percentage points, which corresponds to 18% of the average annual entry rate.
    Keywords: entrepreneurship, health insurance, premium, deductible, MOOP
    JEL: I13 I11 J22 J23 L26
    Date: 2021–11
  4. By: Marta Lachowska (W.E. Upjohn Institute for Employment Research); Alexandre Mas (Princeton University and NBER); Raffaele D. Saggio (University of British Colombia and NBER); Stephen A. Woodbury (Michigan State University and W.E. Upjohn Institute for Employment Research)
    Abstract: This paper examines the behavior of dual jobholders to test a simple model of wage bargaining and wage posting. We estimate the sensitivity of wages and separation rates to wage shocks in a worker’s secondary job to assess the degree of bargaining versus wage posting in the labor market. We interpret the evidence within a model where workers facing hours constraints in their primary job may take a second, flexible-hours job for additional income. When a secondary job offers a sufficiently high wage, a worker either bargains with the primary employer for a wage increase or separates. The model provides a number of predictions that we test using matched employer-employee administrative data from Washington State. In the aggregate, wage bargaining appears to be a limited determinant of wage setting. The estimated wage response to improved outside options, which we interpret as bargaining, is precisely estimated, but qualitatively small. Wage posting appears to be more important than bargaining for wage determination overall, and especially in lower parts of the wage distribution. Observed wage bargaining takes place mainly among workers in the highest wage quartile. For this group, improved outside options translate to higher wages, but not higher separation rates. In contrast, for workers in the lowest wage quartile, wage increases in the secondary job lead to higher separation rates but no significant wage increase in the primary job, consistent with wage posting. We also find evidence in support of the hours-constraint model for dual jobholding. In particular, work hours in the primary job do not respond to wages in the secondary job, but hours and separations in the secondary job are sensitive to wages in the primary job due to income effects.
    Keywords: wage bargaining, wage posting, dual jobholders, employer-employee, secondary jobs, work hours
    JEL: C78 J31 J33 J41
    Date: 2022–01
  5. By: Tobias Broer; Karl Harmenberg; Per Krusell; Erik Öberg
    Abstract: We adapt the wage contracting structure in Chari (1983) to a dynamic, balanced-growth setting with re-contracting à la Calvo (1983). The resulting wage-rigidity framework delivers a model very similar to that in Jaimovich and Rebelo (2009), with their habit parameter replaced by our probability of wage-contract resetting. That is, if wage contracts can be reset very frequently, labor supply behaves in accordance with King, Plosser, and Rebelo (1988) preferences, whereas if they are sticky for a long time, we obtain the setting in Greenwood, Hercowitz, and Huffman (1988), thus allowing significant responses of hours to wage changes.
    JEL: E2 E3 J2 J3
    Date: 2021–12
  6. By: Kevin L. McKinney; John M. Abowd; Hubert P. Janicki
    Abstract: This paper is part of the Global Income Dynamics Project cross-country comparison of earnings inequality, volatility, and mobility. Using data from the U.S. Census Bureau's Longitudinal Employer-Household Dynamics (LEHD) infrastructure files we produce a uniform set of earnings statistics for the U.S. From 1998 to 2019, we find U.S. earnings inequality has increased and volatility has decreased. The combination of increased inequality and reduced volatility suggest earnings growth differs substantially across different demographic groups. We explore this further by estimating 12-year average earnings for a single cohort of age 25-54 eligible workers. Differences in labor supply (hours paid and quarters worked) are found to explain almost 90% of the variation in worker earnings, although even after controlling for labor supply substantial earnings differences across demographic groups remain unexplained. Using a quantile regression approach, we estimate counterfactual earnings distributions for each demographic group. We find that at the bottom of the earnings distribution differences in characteristics such as hours paid, geographic division, industry, and education explain almost all the earnings gap, however above the median the contribution of the differences in the returns to characteristics becomes the dominant component.
    Date: 2021–12
  7. By: Drishti, Elvisa; Carmichael, Fiona
    Abstract: Purpose: This study asks whether lower quality forms of employment lead to career transitions into higher quality forms of employment acting as steppingstones, or bridges or, whether instead they lead to dead-ends, or traps, in which workers move between unstable jobs with low prospects for upward mobility and unemployment. Design/methodology/approach: This study uses a unique dataset recording retrospective monthly employment states over 3 years for 373 individuals in the Albanian city of Shkoder. The analysis uses sequence and regression analysis to investigate whether people employed in lower quality, more precarious jobs remain in these kinds of jobs or instead are able to transition into higher quality, permanent and füll-time employment. Findings: In line with previous evidence for the region and Europe, the analysis confirms the precarization of many working lives particularly for women, young people and those with lower educational attainment. This evidence is more supportive of the dead-end hypothesis than the idea that a lower quality job can be a steppingstone into a better job. Originality: This study contributes to the limited knowledge of labour market functioning in developing post-socialist Western Balkans countries. Recent flexicurity policies have generated an increased prevalence of more precarious employment arrangements in Albania. This investigation addresses previous research limitations regarding point-in-time transitions and unobserved heterogeneity using retrospective recall data and controlling for personality traits.
    Keywords: precarious work,job quality,Albania,sequence analysis,career transitions
    Date: 2022
  8. By: Simon Jäger (MIT); Christopher Roth (University of Cologne); Nina Roussille (LSE); Benjamin Schoefer (UC Berkeley)
    Abstract: Workers wrongly anchor their beliefs about outside options on their current wage. In particular, low-paid workers underestimate wages elsewhere. We document this anchoring bias by eliciting workers’ beliefs in a representative survey in Germany and comparing them to measures of actual outside options in linked administrative labor market data. In an equilibrium model, such anchoring can give rise to monopsony and labor market segmentation. In line with the model, misperceptions are particularly pronounced among workers in low-wage firms. If workers had correct beliefs, at least 10% of jobs, concentrated in low-wage firms, would not be viable at current wages.
    Keywords: Beliefs, Outside Options, Information Frictions, Sorting
    JEL: D83 D84
    Date: 2022–01
  9. By: Louise Lindbjerg; Theodor Vladasel
    Abstract: Technical human capital improves firms' invention outcomes, but generating innovation revenue may require distinct skills in bringing new ideas to market. We argue that former founders are endowed with execution skills, a generalist ability to create and exploit market gaps by acquiring and mobilizing resources, so entrepreneurial human capital enhances innovation in established organizations. Combining register and Community Innovation Survey data from Denmark, we show that entrepreneur hires are associated with higher sales from new products and services. This result is driven by founder hires in middle management, a hierarchical position where broader decision rights and resource access increase execution skills' effectiveness. Founder hires are more tightly linked to innovation new to the firm or market, rather than world, consistent with our prediction that execution skills help bring incremental improvements to market, but do not necessarily generate radical innovation. Together, our findings suggest that entrepreneurial human capital may help firms appropriate a larger share of the value their knowledge generates.
    Keywords: innovation, learning by hiring, entrepreneurship, execution skills, human capital, middle management
    JEL: J24 L23 M12 M21 M51
    Date: 2021–12
  10. By: Kosteas, Vasilios D.; Renna, Francesco; Scicchitano, Sergio
    Abstract: The COVID pandemic that took the world economy by surprise at the beginning of 2020 brought many drastic changes to the way individuals carry on their daily lives. One that will have long lasting effects, even after the spread of the virus is contained, is a shift towards flexible work arrangements, including remote work options. Initially implemented to comply with government imposed stay-at-home orders, many employers decided to allow remote work even after the orders were lifted. In this chapter we will review some of the metrics used in the literature to measure the potential that a specific occupation is suitable for telework. This is important because Working From Home was often the only option for businesses to remain open during the first part of the pandemic. We also review the results of the literature on two important dimensions of inequality: the gender wage gap and income inequality, Moreover, we review some evidence of the effect of WFH on worker's productivity in general and during the pandemic and on physical and mental health. We conclude with a description of what WFH may look like after the pandemic, by describing the process towards a possible "new normal" in the labour market.
    Keywords: COVID-19,working from home,inequality,productivity,health
    JEL: D13 D23 E24 G18 J22 M54 R3
    Date: 2022
  11. By: Thomas Aronsson; Spencer Bastani; Khayyam Tayibov
    Abstract: We integrate social exclusion, operationalized in terms of long-term unemployment, into the theory of optimal redistributive taxation. Our results show how an optimal mix of education policy, public employment, and support to the unemployed, in conjunction with optimal income taxation, contributes to redistribution and reduced long-term unemployment. The second-best optimum most likely implies overprovision of education relative to a policy rule that balances the direct marginal benefit and marginal cost, whereas public employment and unemployment benefits are underprovided. Our calibration shows how the policy mix varies with the government’s preferences for redistribution and the characteristics of those risking long-term unemployment.
    Keywords: long-term unemployment, education, optimal income taxation, public sector employment
    JEL: H21 J24 J45 I21
    Date: 2021
  12. By: Merz, Joachim (Leuphana University Lüneburg); Scherg, Bettina (Leuphana University Lüneburg)
    Abstract: Society drifts apart in many dimensions. Economists focus on income of the poor and rich and the distribution of income but a broader spectrum of dimensions is required to draw the picture of multiple facets of individual life. In our study of multidimensional polarization we extend the income dimension by time, a pre-requisite and fundamental resource of any individual activity. In particular, we consider genuine personal time as a pronounced source of social participation in the sense of social inclusion/exclusion and Amartya Sen's capability approach. With an interdependence approach to multidimensional polarization we allow compensation between time and income, parameters of a CES-type subjective well-being function, where a possible substitution is evaluated empirically by the German population instead of arbitrarily chosen. Beyond subjective well-being indices we propose and apply a new intensity/gap measure to multidimensional polarization, the mean minimum polarization gap 2DGAP. This polarization intensity measure provides transparency with regard to each single attribute, which is important for targeted policies, while at the same time their interdependent relations is respected. The empirical investigation of interdependent multidimensional polarization incidence and intensity uses the German Socio-Economic Panel (GSOEP) and detailed time use diary data from the three German Time Use Surveys (GTUS) 1991/92, 2001/02 and the actual 2012/13. We focus on the working individuals where the working poor requires increasing interest in the economic and social political discussion. The microeconometric two-stage selectivity corrected estimation of interdependent multidimensional risk (incidence) and intensity quantifies socio-economic factors behind. Four striking results appear: First, genuine personal leisure time additional to income is a significant subjective well-being and polarization dimension. Second, its interdependence, its compensation/substitution, evaluated by the German Society, is of economic and statistical significance. Remarkably, besides compensation regimes, there are interdependent multidimensional polarization regimes where even higher income cannot compensate time deficits. Third, interdependent multidimensional polarization incidence (headcount ratio) decreased over those 20 years in Germany, however and in particular, as shown by the new minimum 2DGAP approach, interdependent multidimensional polarization intensity increased over those 20 years in Germany. Fourth, there are different multidimensional polarization results and developments for the poverty and affluence poles and regimes, for fulltime selfemployed, employees and subsequently for further socio-economic groups. And, polarization also appears with respect to social participation.
    Keywords: 2001/02and 2012/13, two-stage Heckman estimates of polarization incidence and intensity, CES well-being function, interdependent multidimensional polarization, extended economic well-being, minimum multidimensional polarization intensity gap (2DGAP), satisfaction/happiness, life satisfaction, subjective well-being, time and income poverty and affluence, social participation, working poor and affluent, middle class, self-employment and employees, German Time Use Surveys 1991/92, German Socio-Economic Panel
    JEL: I32 D31 J22
    Date: 2021–11
  13. By: Michela Giorcelli; Nicola Bianchi
    Abstract: The Marshall Plan (1948–1952) was the largest aid transfer in history. This paper estimates its effects on Italy’s postwar economic development. It exploits differences between Italian provinces in the value of reconstruction grants they received. Provinces that could modernize more their infrastructure experienced higher increases in agricultural production, especially for perishable crops. In the same provinces, we observe larger investments in labor-saving machines, the entry of more firms into the industrial sector, and a larger expansion of the industrial and service workforce.
    JEL: H84 N34 N44 O12 O33
    Date: 2021–12
  14. By: Daniel Osuna Gómez
    Abstract: This paper estimates the impact of the capture of leaders of criminal organizations on the labor market in municipalities where these organizations operated between 2004 and 2006. The difference-in-difference analysis compares different employment outcomes in cartel locations and the rest, before and after the capture of cartel leaders. The results show that captures caused a decrease in nominal wages and paid employment in cartel municipalities. Using Economic Census Data, I find that captures also caused a fall in the number of establishments and had a negative impact on other establishment outcomes. This document focuses exclusively on the impact of the capture of leaders of criminal organizations on the labor market until 2011 without studying other possible consequences, and thus does not make an integral assessment of this policy.
    JEL: J20 J48 K42 O17
    Date: 2021–12
  15. By: Christine L. Dobridge; Paul Landefeld; Jacob Mortenson
    Abstract: This paper investigates how corporate tax changes affect workers’ earnings. We use a dataset of U.S. worker-level W-2 filings matched with corporate tax returns and study the implementation of the Domestic Production Activities Deduction (DPAD). We find the DPAD tax rate reduction has a substantial effect on the distribution of annual wage earnings within a firm. Earnings of workers at the top of their firm’s earnings distribution rise relative to those at the bottom of the distribution. We estimate a semi-elasticity of average earnings of 1.1 with respect to the DPAD marginal tax rate reduction, while the semi-elasticity of median earnings is notably smaller—0.5. Furthermore, we estimate a semi-elasticity of 1.3 at the 95th percentile of workers’ earnings and 2.7 at the 99th percentile. This trend of larger semi-elasticities at the top of the earnings distribution is especially pronounced for small firms. Looking at overall employment effects, we see no change overall, but the number of employees rises at small firms and declines at large firms. In contrast, we find that capital investment rises for large firms, suggesting that the DPAD also resulted in domestic capitallabor substitution for large corporations. Our paper has significant implications for assessing the progressivity of the U.S. tax code and for analyzing the effect of corporate tax policy changes on the U.S. income distribution.
    Keywords: Corporate taxation; Earnings distribution; Employment; Investment
    JEL: D31 H22 H25 J31
    Date: 2021–12–17
  16. By: Pérez Rodríguez, Sandra (ROA / Labour market and training, RS: GSBE other - not theme-related research); van der Velden, Rolf (RS: GSBE Theme Learning and Work, ROA / Education and transition to work); Huijts, Tim (ROA / Health, skills and inequality, RS: GSBE Theme Learning and Work); Jacobs, Babs (ROA / Education and transition to work, RS: GSBE other - not theme-related research)
    Abstract: Skill mismatches have strong negative effects on productivity, job satisfaction, and other outcomes. To reduce skill mismatches, governments need to rely on accurate data on the prevalence of these mismatches. The Programme of the International Assessment of Adult Competences (PIAAC) is currently the most important data source providing excellent and unparalleled information for many countries on two key information-processing skills (i.e., literacy and numeracy skills). However, although these data contain rich information about possessed skills, countries lack directly comparable information on the required skills in those domains. Hence, it has been difficult to use the PIAAC data to identify skill mismatches, other than through proxies of required skills (e.g., the average skill level in occupations) or workers’ self-assessments of skill mismatch. In this paper, we use the Job Analysis Method (JAM) to determine the required skill levels of literacy and numeracy for all 4-digit ISCO08 unit groups of occupations in the same metric and scale as was used in PIAAC. JAM involves the use of occupational experts to rate the skill requirements in the different occupations. JAM has never been used before to identify required skill levels for literacy and numeracy as measured in PIAAC, and the paper thus presents the first results on the prevalence of skill shortages and skill surpluses in these key information-processing skills across different OECD countries and across different occupations and sectors that is based on a more direct estimate of the required skills. We provide estimates for the proportions of well-matched, overskilled and underskilled workers per country, and compare these with estimates based on alternative methods for estimating skill mismatch. We also compare JAM with these other methods in explaining wage differentials, as well as job satisfaction. We conclude that there are large differences in the estimates of the prevalence of skill mismatches depending on the method used. We show several advantages using JAM and discuss some of the limitations as well.
    JEL: J24
    Date: 2021–12–31
  17. By: Matthew Lowe; Madeline McKelway
    Abstract: Joint household decision-making may be prevented by the incentives of individuals to withhold information or avoid bargaining. We study whether these barriers to joint decision-making keep female labor force participation low in India. In partnership with one of India’s largest carpet producers, we offered a weaving job to 495 married women. We randomized whether job information and a ticket enabling enrollment were given to the wife or to the husband, and cross-randomized the non-ticketed spouse to one of three information sets. With no information, the ticketed spouse could plausibly deny the existence of the job ticket to prevent enrollment. With information, the non-ticketed spouse was also informed about the job opportunity. With discussion, both spouses were given three minutes to discuss the job opportunity together. Our motivating model predicts that both information and discussion should raise enrollment, and nearly all intra-household experts we surveyed gave the same qualitative predictions. In reality, information had no effect on enrollment, and discussion reduced enrollment by as much as 50%. We sketch an alternative model in which interventions that make household decision-making more joint give both spouses veto power and reduce enrollment. Supporting this model, the negative effects on enrollment are driven by couples that disagree about the appropriateness of women working as weavers.
    Keywords: intra-household, gender, bargaining, expert survey, India
    JEL: D13 O12 J22
    Date: 2021
  18. By: Barschkett, Mara (DIW Berlin); Geyer, Johannes (DIW Berlin); Haan, Peter (DIW Berlin); Hammerschmid, Anna (DIW Berlin)
    Abstract: This study analyzes the causal effect of an increase in the retirement age on health. We exploit a sizable cohort-specific pension reform for women using two complementary empirical approaches – a Regression Discontinuity Design and a Difference-in-Differences approach. The analysis is based on official records covering all individuals insured by the public health system in Germany and including all certified diagnoses by practitioners. This enables us to gain a detailed understanding of the multi-dimensionality in these health effects. The empirical findings reflect the multi-dimensionality but allow for deriving two broader conclusions. We provide evidence that the increase in the retirement age negatively affects health outcomes as the prevalence of several diagnoses, e.g., mental health, musculoskeletal diseases, and obesity, increases. In contrast, we do not find support for an improvement in health related to a prolonged working life since there is no significant evidence for a reduction in the prevalence of any health outcome we consider. These findings hold for both identification strategies, are robust to sensitivity checks, and do not change when correcting for multiple hypothesis testing.
    Keywords: Germany, retirement, pension reform, health, ICD-10, Regression Discontinuity Design, Difference-in-Differences
    JEL: I10 I12 I18 J14 J18 J26
    Date: 2021–11
  19. By: William L. Gamber
    Abstract: The creation of new businesses declines in recessions. In this paper, I study the effects of pro-cyclical business formation on aggregate employment in a general equilibrium model of firm dynamics. The key features of the model are that the elasticity of demand faced by firms falls with their market share and that adjustment costs slow the reallocation of employment between firms. In response to a decline in entry, incumbent firms' market shares increase, their elasticity of demand falls, and they increase their markups and reduce employment. To quantify the model, I study the relationship between variable input use and revenue in panel data on large firms. Viewed through the lens of my model, my estimates imply that for large firms, the within-firm elasticity of the markup to relative sales is 25 percent. I use the calibrated model to study shocks to entry, finding that a fall in entry can lead to a significant contraction in employment. A shock to entry that replicates the decline in the number of businesses during the Great Recession generates a prolonged 2.5 percent fall in employment in the model. Finally, I show that the declining correlation between revenue and variable input use over the past 30 years implies that the effect of entry on the business cycle has become stronger over time.
    Keywords: Macroeconomics; Heterogeneous firms; Business dynamics; Variable markups
    JEL: E24 E32 J23 L20
    Date: 2021–12–02

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