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Inventories, Employment and Hours

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  • Marzio Galeotti

    (University of Bergamo)

  • Louis J. Maccini

    (Johns Hopkins University)

  • Fabio Schiantarelli

    ()
    (Boston College)

Abstract

The purpose of this paper is to develop a model that integrates inventory and labor decisions. We extend a model of inventory behavior to include a detailed specification of the role of labor input in the production process and of the costs associated with it. In particular, we distinguish between employment, hours and effort per worker, and allow for adjustment costs associated with employment changes. We assume that the requirement function for effective hours has a general trans-logarithmic form, and derive an estimable system of Euler equations for inventories and employment with implied cross-equation restrictions. The econometric results shed light on several important topics, including the shape of the marginal cost of output and the role of labor hoarding as an explanation of procyclical productivity and the persistence of inventory stocks. Moreover, they raise questions about the adequacy of commonly used specifications such as Cobb-Douglas approximations to the production process and the definition of labor input as the product of employment and effective hours worked per worker.

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Bibliographic Info

Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 522.

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Length: 56 pages
Date of creation: 30 Jan 2002
Date of revision:
Handle: RePEc:boc:bocoec:522

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Keywords: Inventories; Employment; Hours; Labor Adjustment Costs; Procyclical Productivity;

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References

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Cited by:
  1. Adam Copeland & George Hall, 2005. "The Response of Prices, Sales, and Output to Temporary Changes in Demand," Cowles Foundation Discussion Papers 1543, Cowles Foundation for Research in Economics, Yale University.
  2. Leonardo Auernheimer & Danilo Trupkin, 2013. "Online Appendix to "The role of inventories and capacity utilization as shock absorbers"," Technical Appendices 12-159, Review of Economic Dynamics.
  3. Yi Wen, 2005. "Labor hoarding and inventories," Working Papers 2005-040, Federal Reserve Bank of St. Louis.
  4. Piccirilli, Giulio, 2009. "Contingent worksharing," Research in Economics, Elsevier, vol. 63(2), pages 135-143, June.

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