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  4. September 2018
  5. In Search of Labor Demand

In Search of Labor Demand

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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.

Citation

Beaudry, Paul, David A. Green, and Ben M. Sand. 2018. "In Search of Labor Demand." American Economic Review, 108 (9): 2714-57. DOI: 10.1257/aer.20141374

Additional Materials

JEL Classification

  • J23 Labor Demand
  • J31 Wage Level and Structure; Wage Differentials
  • J38 Wages, Compensation, and Labor Costs: Public Policy
  • L26 Entrepreneurship
  • M13 New Firms; Startups
  • R23 Urban, Rural, Regional, Real Estate, and Transportation Economics: Regional Migration; Regional Labor Markets; Population; Neighborhood Characteristics