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Dynamics of labor demand : evidence from plant-level observations and aggregate implications

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Author Info
Russell Cooper
John Haltiwanger
Jonathan L. Willis

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Abstract

This paper studies the dynamics of labor demand at the micro and aggregate level. The correlation of hours and employment growth is negative at the plant level and positive in aggregate time series. Further, hours and employment growth are about equally volatile at the plant level while hours growth is much less volatile than employment growth in the aggregate data. Given these differences, we specify and estimate the parameters of a plant-level dynamic optimization problem using simulated method of moments to match plant-level observations. Our findings indicate that non-convex adjustment costs are critical for explaining plant-level moments on hours and employment. Aggregation generates time-series implications which are broadly consistent with observation. Further, we find that a model with quadratic adjustment costs alone can also broadly match the aggregate facts.

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Paper provided by Federal Reserve Bank of Kansas City in its series Research Working Paper with number RWP 03-12.

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Date of creation: 2003
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Handle: RePEc:fip:fedkrw:rwp03-12

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Related research
Keywords: Employment (Economic theory) ; Labor market;

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This paper has been announced in the following NEP Reports: This item is featured on the following reading lists:
  1. Canadian Macro Study Group
Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)
  1. Russell Cooper & John Haltiwanger & Jonathan L. Willis, 2006. "Hours and employment implications of search frictions: matching aggregate and establishment-level observations," Research Working Paper RWP 06-14, Federal Reserve Bank of Kansas City. [Downloadable!]
  2. João Miguel Ejarque & Pedro Portugal, 2007. "Labor Adjustment Costs in a Panel of Establishments: A Structural Approach," IZA Discussion Papers 3091, Institute for the Study of Labor (IZA). [Downloadable!]
  3. Nicholas Bloom, 2007. "The Impact of Uncertainty Shocks," NBER Working Papers 13385, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. Ejarque, Joao & Nilsen, Øivind Anti, 2008. "Identifying Adjustment Costs of Net and Gross Employment Changes," IZA Discussion Papers 3703, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  5. Russell Cooper & John Haltiwanger & Jonathan L. Willis, 2007. "Implications of Search Frictions: Matching Aggregate and Establishment-level Observations," NBER Working Papers 13115, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Eugenio Pinto, 2006. "Firm Dynamics with Infrequent Adjustment and Learning," Computing in Economics and Finance 2006 467, Society for Computational Economics. [Downloadable!]
  7. Russell Cooper & Jonathan L. Willis, 2004. "A Comment on the Economics of Labor Adjustment: Mind the Gap: Rejoinder," American Economic Review, American Economic Association, vol. 94(4), pages 1245-1247, September. [Downloadable!]
  8. Russell Cooper & Jonathan Willis, 2002. "The cost of labor adjustment : inferences from the gap," Research Working Paper RWP 02-11, Federal Reserve Bank of Kansas City. [Downloadable!]
    Other versions:
  9. Russell Cooper & Jonathan Willis, 2009. "The Cost of Labor Adjustment: Inferences from the Gap," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(4), pages 632-647, October. [Downloadable!] (restricted)
    Other versions:
  10. Catherine Fuss, 2008. "How do firms adjust their wage bill in Belgium ? A decomposition along the intensive and extensive margins," Research series 200801-31, National Bank of Belgium. [Downloadable!]
    Other versions:
  11. Marcela Eslava & John Haltiwanger & Adriana Kugler & Maurice Kugler, 2005. "Factor Adjustments after Deregulation: Panel Evidence from Colombian Plants," IZA Discussion Papers 1751, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  12. Nick Bloom, 2006. "The Impact of Uncertainty Shocks: Firm Level Estimation and a 9/11 Simulation," CEP Discussion Papers dp0718, Centre for Economic Performance, LSE. [Downloadable!]
  13. Amil Petrin & Jagadeesh Sivadasan, 2006. "Job Security Does Affect Economic Efficiency: Theory, A New Statistic, and Evidence from Chile," NBER Working Papers 12757, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  14. Andrew Figura, 2004. "Workweek flexibility and hours variation," Finance and Economics Discussion Series 2004-59, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  15. Michael W. L. Elsby & Ryan Michaels, 2008. "Marginal Jobs, Heterogeneous Firms, & Unemployment Flows," NBER Working Papers 13777, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  16. Steven J. Davis & R. Jason Faberman & John Haltiwanger, 2006. "The Flow Approach to Labor Markets: New Data Sources and Micro-Macro Links," NBER Working Papers 12167, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  17. Yoonsoo Lee & Toshihiko Mukoyama, 2008. "Entry, exit and plant-level dynamics over the business cycle," Working Paper 0718, Federal Reserve Bank of Cleveland. [Downloadable!]
    Other versions:
  18. Guiso, Luigi & Pistaferri, Luigi & Schivardi, Fabiano, 2006. "Labour Adjustment: Disentangling Firing and Mobility Costs," CEPR Discussion Papers 5787, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
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