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Aggregate Employment Dynamcis and Lumpy Adjustment Costs

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  • Daniel S. Hamermesh

Abstract

This study examines what one can infer from aggregate time-series of employment under the assumption that adjustment at the micro level is discrete because of lumpy adjustment costs. The research uses various sets of quarterly and monthly data for the United States and imposes assumptions about how sectoral dispersion in output shocks affects adjustment through aggregation. I find no consistent evidence of any effect of sectoral shocks on the path of aggregate employment. I generate artificial aggregate time series from microeconomic processes in which firms adjust employment discretely. They produce the same inferences as the actual data. Standard methods of estimating equations describing the time path of aggregate employment yield inferences about differences in the size of adjustment costs that are incorrect and inconsistent with the true differences at the micro level. This simulation suggests that the large literature on employment dynamics based on industry or macro data cannot inform us about the size of adjustment costs, and that such data cannot yield useful information on variations in adjustment costs over time or among countries.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3229.

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Date of creation: Jan 1990
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Publication status: published as Carnegie-Rochester Conference Series on Public Policy, Vol. 33, pp. 93-129, (Autumn 1990).
Handle: RePEc:nbr:nberwo:3229

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Cited by:
  1. Hamermesh, Daniel S, 1992. "A General Model of Dynamic Labor Demand," The Review of Economics and Statistics, MIT Press, vol. 74(4), pages 733-37, November.
  2. José Varejão & Pedro Portugal, 2007. "Spatial and Temporal Aggregation in the Estimation of Labor Demand Functions," Working Papers, Banco de Portugal, Economics and Research Department w200704, Banco de Portugal, Economics and Research Department.
  3. Kölling, Arnd & Schnabel, Claus & Wagner, Joachim, 2001. "Bremst das Schwerbehindertengesetz die Arbeitsplatzdynamik in Kleinbetrieben?," Discussion Papers 4, Friedrich-Alexander-University Erlangen-Nuremberg, Chair of Labour and Regional Economics.
  4. Claude Mathieu & Yann Nicolas, 2006. "Coûts d'ajustement de la demande de travail : une comparaison entre la France et la République tchèque," Économie et Prévision, Programme National Persée, Programme National Persée, vol. 173(2), pages 135-152.
  5. Robert G. King & Julia K. Thomas, . "Partial Adjustment without Apology," GSIA Working Papers, Carnegie Mellon University, Tepper School of Business 1999-E12, Carnegie Mellon University, Tepper School of Business.
  6. Mulligan Casey B, 2001. "Aggregate Implications of Indivisible Labor," The B.E. Journal of Macroeconomics, De Gruyter, De Gruyter, vol. 1(1), pages 1-35, April.
  7. Casey B. Mulligan, 1998. "Microfoundations and macro implications of indivisible labor," Discussion Paper / Institute for Empirical Macroeconomics, Federal Reserve Bank of Minneapolis 126, Federal Reserve Bank of Minneapolis.

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