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Labor Demand on a Tight Leash

Mario Bossler & Martin Popp

ILR Review (Industrial and Labor Relations Review)2026https://doi.org/10.1177/00197939261435961preprint
AJG 3ABDC A*
Weight
0.37

Abstract

Using detailed information on vacancies and job seekers, the authors study the effect of labor market tightness on labor demand for the near-universe of German firms. To this end, novel Bartik instruments are constructed that combine firms’ predetermined employment shares with nationwide shifts at the occupational level. The results show that tightness significantly reduces firms’ labor demand, implying that the observed doubling in tightness between 2012 and 2019 reduced employment by 5%. At the aggregate level, the negative tightness effect creates search externalities, which reduce the own-wage elasticity of labor demand from −0.7 to −0.5 through reallocation of workers between firms. To guide the analysis, the authors embed elements of the canonical search-and-matching model into a labor demand equation, while allowing vacancy posting costs to increase in tight markets. Through the lens of this model, the pre-match component of hiring costs amounts to 16–24% of annual wage payments.

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https://doi.org/https://doi.org/10.1177/00197939261435961

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@article{mario2026,
  title        = {{Labor Demand on a Tight Leash}},
  author       = {Mario Bossler & Martin Popp},
  journal      = {ILR Review (Industrial and Labor Relations Review)},
  year         = {2026},
  doi          = {https://doi.org/https://doi.org/10.1177/00197939261435961},
}

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Labor Demand on a Tight Leash

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Evidence weight

0.37

Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40

F · citation impact0.16 × 0.4 = 0.06
M · momentum0.53 × 0.15 = 0.08
V · venue signal0.50 × 0.05 = 0.03
R · text relevance †0.50 × 0.4 = 0.20

† Text relevance is estimated at 0.50 on the detail page — for your query’s actual relevance score, open this paper from a search result.