Research Seminar "Market Imperfections and Business Dynamism in Estonia" (Amaresh Tiwari)

Tuesday, 11 Feb 2025 at 11.00-12.00 Zoom

Market Imperfections and Business Dynamism in Estonia

AMARESH K. TIWARI (University of Tartu) 

The paper finds that the job reallocation rate, as in the US and the EU countries, has declined in Estonia.  While the job reallocation rate is higher among the young firms, compared to older firms, the rate has declined faster among the young firms.  The paper studies the underlying drivers of the decline by examining the shocks and the responsiveness hypotheses. While, in general, the employment growth responsiveness to productivity has declined to some extent since 2005, it has declined significantly among the young firms.  In contrast to the other European countries, the dispersion of productivity shocks has largely remained unchanged.  To understand the pattern of job reallocation rates, the paper further studies how firms' employment growth responsiveness to productivity are shaped by market — monopoly and monopsony — power, production technologies, and wages. It finds that monopoly power adversely affects the employment growth responsiveness to productivity for both young and old firms. However, the effect is stronger for the young firms. Moreover, we find that monopsony power adversely affects the responsiveness of the young firms. Except for the ICT and the Professional, Scientific and Technical service sector, production technologies do not appear to play a role in improving firms' responsiveness.