Reallocation of Labor Resources: Evidence from Danish Firm Data

Abstract

This paper presents empirical evidence based on a unique dataset drawn from a matched employer-employee panel of Danish firm data that illustrates the importance of reallocation of labor resources from less to more productive firms for aggregate productivity growth. This reallocation is more prominent when differences in the work hours across firms are accounted for. In addition, this study explores the dynamic interaction between hours and employment found at the firm level. Empirical facts presented here suggest that in the short run firms use the variation in hours to mitigate changes in the number of workers.