Labor Demand and the Structure of Adjustment Costs
This study examines the costs firms face in adjusting labor demand to exogenous shocks. Evidence on monthly plant-level data shows that adjustment proceeds in jumps: employment is unchanged in response to small shocks, but moves instantaneously to a new equilibrium if the shocks are large. Results in the large literature that assumes smooth adjustment are due to aggregation of this nonlinear relation. The finding has implications for cyclical changes in productivity; for severance pay, layoff, and plant-closing restrictions; and for all other policies that affect the cost of adjusting employment. Copyright 1989 by American Economic Association.
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Volume (Year): 79 (1989)
Issue (Month): 4 (September)
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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.:
- Alan S. Blinder, 1981. "Retail Inventory Behavior and Business Fluctuations," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 12(2), pages 443-520.
- Robert J. Barro, 1972. "A Theory of Monopolistic Price Adjustment," Review of Economic Studies, Oxford University Press, vol. 39(1), pages 17-26.
- Hamermesh, Daniel S., 1987.
"The demand for labor in the long run,"
Handbook of Labor Economics,in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 8, pages 429-471
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- Burgess, Simon M, 1988. "Employment Adjustment in UK Manufacturing," Economic Journal, Royal Economic Society, vol. 98(389), pages 81-103, March.
- Sargent, Thomas J, 1978. "Estimation of Dynamic Labor Demand Schedules under Rational Expectations," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 1009-1044, December.
- Thomas J. Sargent, 1978. "Estimation of dynamic labor demand schedules under rational expectations," Staff Report 27, Federal Reserve Bank of Minneapolis.
- P. K. Trivedi, 1985. "Distributed Lags, Aggregation and Compounding: Some Econometric Implications," Review of Economic Studies, Oxford University Press, vol. 52(1), pages 19-35.
- Robert J. Gordon, 1979. "The "End-of-Expansion" Phenomenon in Short-Run Productivity Behavior," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 10(2), pages 447-462.
- Robert J. Gordon, 1980. "The "End-of-Expansion" Phenomenon in Short-run Productivity Behavior," NBER Working Papers 0427, National Bureau of Economic Research, Inc.
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