TY  - RPRT
        AU  - Bossler, Mario
AU  - Popp, Martin
        TI  - Labor Demand on a Tight Leash
        PY  - 2024/Mar/
        PB  - Institute of Labor Economics (IZA)
        CY  - Bonn
        T2  - IZA Discussion Paper
        IS  - 16837
        UR  - https://www.iza.org/index.php/publications/dp16837
        AB  - We develop a labor demand model that encompasses pre-match hiring cost arising from tight labor markets. Through the lens of the model, we study the effect of labor market tightness on firms' labor demand by applying novel shift-share instruments to the universe of German firms. In line with theory, we find that a doubling in tightness reduces firms' employment by 5 percent. Taking into account the resulting search externalities, the wage elasticity of firms' labor demand reduces from -0.7 to -0.5 through reallocation effects. In light of our results, pre-match hiring cost amount to 40 percent of annual wage payments.
        KW  - labor demand
KW  - labor market tightness
KW  - wages
KW  - hiring cost
KW  - reallocation effects
        ER  -