The Demand for Labor and Job Turnover: Israeli Manufacturing 1970 - 1994

Abstract

Job turnover is a major sources of labor turnover, and perhaps a contributing factor to unemployment. Job turnover in Israeli manufacturing, in spite of the rigidity of the labor market, does not differ from job turnovers in Europe and North America. New jobs in expanding and new firms increase employment by 10 percent, and contracting and closing firms destroy about 8 percent of all jobs annually. Job turnover can be explained in the framework of a dynamic model of labor demand. The major driving force behind the change in employment are changes in productivity. The negative correlation between the demand for labor and changes in wages is less pronounced. Adjustment costs result in inbuilt inertia in job turnover. The inertia effect is, however, asymmetric. Declines in employment have a much stronger effect than emp- loyment increases.