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Labor Adjustment Dynamics: An Application Of System Gmm

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  • Pedro M. Esperança

    ()
    (Nova School of Business of Economics, Universidade Nova de Lisboa, Portugal)

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    Abstract

    This paper analyzes the dynamics of the Portuguese labor market using micro data: implications of adjustment costs to input factor adjustment throughout the business cycle are discussed; the current situation of the Portuguese labor market is reviewed; and measures of speed of adjustment for different types of labor (namely, the number of workers and the number of hours employed by firms) are obtained using a System GMM estimator and compared to those obtained for other countries. Additionally, we provide the median adjustment lag and short- and long-run labor demand elasticities with respect to firms' wages and sales. We conclude that the Portuguese labor market is slow in adjustment relative to other countries, while there is no evidence to support the claim that adjustment through the number of hours employed is faster than the adjustment through the number of workers employed.

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    File URL: http://www.gee.min-economia.pt/RePEc/WorkingPapers/GEE_PAPERS_43.pdf
    File Function: First version, 2011
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    Bibliographic Info

    Paper provided by Gabinete de Estratégia e Estudos, Ministério da Economia e da Inovação in its series GEE Papers with number 0043.

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    Length: 21 pages
    Date of creation: Dec 2011
    Date of revision: Dec 2011
    Handle: RePEc:mde:wpaper:0043

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    Related research

    Keywords: Labor demand; Adjustment dynamics; Adjustment costs; System GMM; Median adjustment lag;

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    1. Bentolila, Samuel & Bertola, Giuseppe, 1990. "Firing Costs and Labour Demand: How Bad Is Eurosclerosis?," Review of Economic Studies, Wiley Blackwell, vol. 57(3), pages 381-402, July.
    2. Katherine G. Abraham & Susan N. Houseman, 1993. "Does Employment Protection Inhibit Labor Market Flexibility? Lessons from Germany, France and Belgium," Upjohn Working Papers and Journal Articles 93-16, W.E. Upjohn Institute for Employment Research.
    3. R Blundell & Steven Bond, . "Initial conditions and moment restrictions in dynamic panel data model," Economics Papers W14&104., Economics Group, Nuffield College, University of Oxford.
    4. M Arellano & O Bover, 1990. "Another Look at the Instrumental Variable Estimation of Error-Components Models," CEP Discussion Papers dp0007, Centre for Economic Performance, LSE.
    5. Windmeijer, Frank, 2005. "A finite sample correction for the variance of linear efficient two-step GMM estimators," Journal of Econometrics, Elsevier, vol. 126(1), pages 25-51, May.
    6. Rebecca M. Blank, 1994. "Introduction to "Social Protection versus Economic Flexibility: Is There a Trade-Off?"," NBER Chapters, in: Social Protection versus Economic Flexibility: Is There a Trade-Off?, pages 1-20 National Bureau of Economic Research, Inc.
    7. Bentolila, Samuel & Saint-Paul, Gilles, 1992. "A Model of Labour Demand with Linear Adjustment Costs," CEPR Discussion Papers 690, C.E.P.R. Discussion Papers.
    8. Abowd, John M. & Kramarz, Francis, 2003. "The costs of hiring and separations," Labour Economics, Elsevier, vol. 10(5), pages 499-530, October.
    9. Rebecca M. Blank, 1994. "Social Protection versus Economic Flexibility: Is There a Trade-Off?," NBER Books, National Bureau of Economic Research, Inc, number blan94-1.
    10. Olivier Blanchard & Pedro Portugal, 1998. "What Hides Behind an Umemployment Rate: Comparing Portuguese and U.S. Unemployment," NBER Working Papers 6636, National Bureau of Economic Research, Inc.
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