ETLA Discussion Papers, The Research Institute of the Finnish Economy (ETLA) 714
This study contains an empirical analysis of gross job and worker flows in the context of the great depression of the early 1990s. The novelty of the empirical implemention is to characterize gross job and worker flows in terms of education and experience of employees. This is an important extension of the literature on job creation and destruction, because the influential tradition summarized by Davis, Haltiwanger and Schuh (1996) only takes into account firms' characteristics (such as age and size) in the analysis of gross job and worker flows. Also, the sectoral composition of the empirical study goes well beyond manucentrism. Thus, the study includes a number of service sectors. The analysis indicates that in the case of the Finnish economy the inclusion of detailed establishment demography is not an essential part of the analysis of gross job and worker flows. The results reveal some interesting notions about the underlying dynamics of the great depression of the early 1990s. The slump of the early 1990s caused a restructuring of service sectors after the shakeup of manufacturing industries. The analysis of gross job and worker flows indicates that the employment of the less educated has relatively deteriorated throughout the period from 1989 to 1996 and especially so in manufacturing. High-educated have much lower propensity to loose jobs in the recession. But because of the high cyclicality of job creation, job reallocation is approximately at the same level for high-educated workers than for others, which contrasts with the findings in some other countries. The adjustment of labour demand at the establishment-level for the entire labour force in the resession period was tailored via decreasing hirings of workers rather than increasing separations of workers despite the rise in job destruction. The most likely explanation for this is the decrease in voluntary worker flow during the great depression of the 1990s. Also, the results indicate that employees with basic education only and the least experienced employees of the Finnish economy were the key categories of labour force which carried the heaviest burden of restructuring during the depression. In fact, the employment of the highly educated segment of the Finnish labour market decreased only in the years 1992 and 1993, while the employment deteriorated for five years 1990-1994 for employees with basic education only.