Transcript Lectures on Job Creation and Job Destruction

Development and Reform Research Team
University of Bologna
Lectures on Job Creation and Job Destruction
With applications to transition economies
Prof. Hartmut Lehmann
Dipartimento di Scienze Economiche
Università di Bologna
Topics discussed
•
Measures of job and worker flows
•
A look at job and worker flows in Poland, Russia (pre- and post-transition), and
Ukraine.
•
Stylized facts about job creation and destruction in transition countries.
•
Is there creative destruction in transition countries? Looking at the example of
Russia.
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Why do we want to look at gross job flows and not only on changes in
employment stocks – in a western and in a transition context?
E = entry (jc) +
exit (jd) +
expansion (jc)+
contraction (jd)
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Measures of job gross flows
• Net employment growth rate at firm/establishment level. Following
Davis and Haltiwanger (1999) we define this growth rate as
git = nit – ni,t-1 / xit
where nit stands for employment of firm i at time t and xit = (nit + ni,t-1) /
2 is the average employment size of the establishment/firm. This net
employment growth rate, being symmetric and lying in the interval [2,2], can take account of entry, expansion, contraction and exit of
firms.
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Net Growth rates of employment:
Russia 1997
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Numerical example of net employment growth rate
•
git
•
git
•
git
•
git
Let nit = 100 and ni,t-1 = 0, then
= (100-0)/(100 + 0)/2=2  entry
Let nit = 0 and ni,t-1 = 100, then
= (0 – 100)/(0 +100)/2= -2  exit
Let nit = 100 and ni,t-1 = 50, then
= (100-50)/(100 + 50)/2=0.666  expansion
Let nit = 50 and ni,t-1 = 100, then
= (50-100)/(50 + 100)/2= -0.666  contraction
So, in an economy we have:
 E = entry (jc) + exit (jd) + expansion (jc)+ contraction (jd)
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Job creation rate
• Let Xt be total average employment of the economy or of the sector
under investigation, i.e. let Xt = iI xit, where I stands for the set of
all firms in the economy or in the sector. The job creation rate is
then defined as:
pos  iI+ git(xit/Xt) = iI+ (nit – ni,t-1) / Xt,
where I+ is the subset of expanding/entering firms.
The job creation rate is thus defined as the weighted
sum of all positive net growth rates in the economy or in
the sector. Alternatively we can think of this rate as the
increase in employment in expanding firms expressed as
a proportion of total employment.
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Job destruction rate
•
The job destruction rate is defined analogously
neg  iI- |git|(xit/Xt) = iI- |nit – ni,t-1| / Xt,
here we now sum over the subset of contracting/exiting firms, I-.
The job destruction rate, normally expressed in absolute value, can also be
interpreted as the absolute value of the decrease in employment in contracting firms
as a proportion of total employment.
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Other job flow rates
• The gross job reallocation rate is
gross = pos + neg,
• The net change of employment is represented by
net = pos – neg.
If net employment changes are very large and mainly driven by
contraction and exit, as will be the case particularly during the early
phase of transition, then gross might not capture the reallocation of
jobs very well.
For example, if, like in U.S., pos= 10% and neg=10%,
then gross=20 % reflects true job reallocation;
if on the other hand, pos=0% and neg = 20%,
then gross=20%, but there has not been any job reallocation at all
(jobs have only disappeared in this scenario).
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Other job flow rates, cont.
The alternative measure of job reallocation, the so-called excess job
reallocation rate,
excess = gross - |net|,
is therefore often used to catch job reallocation in excess of the
amount necessary to accommodate a net aggregate employment
change. We can also think of excess as an index of firm
heterogeneity with respect to job creation and destruction in an
economy or a given sector.
For example when pos=10% and neg=10%, then |net| = 0% and
excess = 20% - 0% = 20%  true job reallocation of 20%;
if, on the other hand pos=0% and neg=20%, then |net| = 20% and
excess = 20% - 20% = 0%  no job reallocation at all.
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Job flows in Poland before and after transition
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Job and worker flows by ownership
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Job flows by size – Poland 1991
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Results of regression determining factors that have impact on
net growth rate of employment – Konings/Lehmann/Schaffer
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Job Flows in Russian Manufacturing Firms,
Brown and Earle (2002)
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Job Flows in Russian Manufacturing Firms,
Brown and Earle (2002)
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Job Flows in Russian Manufacturing Firms,
Brown and Earle (2002)
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Decomposition of ecxess job reallocation rate by 2-digit sector in Ukraine –
Konings, Kupets and Lehmann (2003)
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Job flows in transition: stylized facts
o
The patterns of job creation and job destruction vary over the transition period.
In early transition: job destruction dominates job creation, In later stage of transition:
economy roughly destroys as many jobs as it creates.
o
The empirical evidence for CEE countries :
whether countries embark on a course of rapid or slow reform, eventually they show
job reallocation rates similar to those in mature capitalist economies, with roughly
equal creation and destruction rates.
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Job flows in transition: stylized facts, cont.
• The worker flows mirror the pattern of job flows.
• In most CEE countries, the increment in worker flows is
dominated by the separation rate in the early stages of transition,
while the hiring rate outpaces the separation rate in the latter
stages.
• A large part of separations and hirings are driven by job
destruction and job creation, suggesting that a major factor
underlying worker mobility is that workers are moving because
the allocation of jobs across businesses is changing as opposed
to workers reallocating themselves for a given allocation of jobs
across businesses.
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Job flows in transition: stylized facts, cont.
o
Small and new private firms contribute disproportionately to job creation while stateowned firms are responsible for most of the job destruction.
o
The heterogeneity of job creation and destruction within narrowly defined sectors is
tremendous. The vast majority of job reallocation at any point in the transition is not
across sectors but within sectors. So, while some industries contract and others
expand their employment shares, most of job reallocation takes place within
industries. Even so, the pace of between industry reallocation is higher in the
transition economies than in mature, developed economies.
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Is job destruction “creative” in transition economies?
•
•
Joseph Schumpeter’s concept of creative destruction
Brown and Earle (2002) test whether job reallocation is enhancing productivity as
predicted by theory.
data: ‘traditional’ manufacturing sector in Russia spanning the years 1985–99
findings: a negligible association of job flows with productivity before 1992, which turns
strongly positive after the beginning of reforms.
implication: even as the Russian manufacturing sector goes through a difficult period of
downsizing, the job reallocation process has taken such a form as to make job
destruction more creative.
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Productivity Decomposition using decomposition suggested by Olley and Pakes (1996)
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