To Örebro University

This thesis contains five self-contained papers on firms’ hiring decisions regarding outsiders and how these decisions interact with insiders. Outsiders are broadly defined as people with a weak labor market position, e.g., unemployed, non-Western migrants or minimum-wage workers. Insiders are those who are securely employed.

In paper (1), we investigate what characterizes the firms that hire unemployed non-Western immigrants. The results show that firms active in the service industries are more likely to hire unemployed non-Western immigrants. However, this is a rare event, suggesting this sector is unlikely to ever be able to absorb more than a fraction of this outsider group under current labor market conditions.

In paper (2), we analyze whether labor cost reductions induce firms to hire outsiders in the retail industry. In this case, a Swedish youth payroll tax cut is used to determine if a reduction in firms’ labor costs increases their employment of minimum-wage retail workers. The results show that reduced labor costs incentivize firms to increase their employment of workers whose wages are close to negotiated minimum wages.

In paper (3), we investigate whether the gains from the abovementioned payroll tax cut have been absorbed in higher wages for insiders rather than increasing employment. The results show that while insiders saw their total earnings increase, the main reason for their earnings increase was that they worked more hours.

Finally, we explore whether firms’ hiring decisions regarding outsiders are related to their growth rate in papers (4) and (5). The results in paper (4) show that the fastest growing firms are more likely to hire outsiders. However, this finding does not hold when new firms are examined separately and over time. In contrast, the results in paper (5) indicate that high-growth new firms tend to recruit individuals with higher skills during their first three years of operation, suggesting that a firm’s time dimension and point in its lifecycle are important.