In this paper, the authors study how firms react to demand shocks, examining how different aspects of flexibility shape their responses. Their main findings are that very few firms choose to adjust to price in response to a demand shock and that firms with more flexibility are more likely to respond to demand shocks by adjusting employment and hours. The authors' results provide a microeconomic explanation for recent macroeconomic evidence that labor input has become more closely aligned to the business cycle. Copyright 1997 by Royal Economic Society.
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Volume (Year): 49 (1997) Issue (Month): 3 (July) Pages: 362-79 Download reference. The following formats are available: HTML,
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Handle: RePEc:oup:oxecpp:v:49:y:1997:i:3:p:362-79
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